Market Synopsis: Stocks Mixed, Treasury Yields Mixed, Commodities Mixed, Dollar Higher, Crypto Higher
Past Week Events:
This Week's Events:
The Federal Reserve's preferred inflation measure, the personal consumption expenditure (PCE) index with the exception of food and electricity, rose by 0.1% in August. This is in contrast to the projected 0.2% boom. Over a 12-month period, the core PCE's annual increase was 3.9%, aligning with expectations and showing the smallest month-to-month surge since November 2020. Consumer spending accelerated to 0.4% in modern-dollar terms, a decline from July's 0.9%. When accounting for food and electricity, the headline PCE rose by 0.4% monthly and 3.5% annually. The PCE index is valued for its reflection of consumer behavior shifts, offering a more comprehensive cost-of-living view than the consumer price index. The core PCE's sub-4% year-over-year reading is its first in nearly two years, down from July's 4.3%. The Fed has been aggressively raising interest rates since March 2022 but paused in September. Market expectations suggest the Fed might halt rate hikes, but one more quarter-point rise is anticipated by year-end.
Consumer Confidence Declines Amid Economic Worries
US consumer sentiment dipped to a four-month low in September, as per the Conference Board. The drop, from 108.7 in August to 103.0, is attributed to high inflation and the Federal Reserve's stance on elevated interest rates. The decline was notably felt among higher-income individuals. Rising living costs and the Fed's commitment to high borrowing costs to combat inflation have likely influenced this sentiment. The housing market also felt the pinch, with fewer Americans optimistic about home purchases due to soaring mortgage rates. Despite these concerns, the US economy showcased strong Q2 growth and a stable unemployment rate. However, Wall Street remains wary of potential economic challenges in 2023.
Next Week:
The unemployment rate will also be released next week. The unemployment rate is the number of people who are unemployed but are actively looking for work. The unemployment rate has remained stagnant at very low levels, with it being at 3.8% last month. This upcoming report is forecasted to come in at 3.7%.
The S&P Final Global Manufacturing and Services PMI Flashes for the month will be reported. These are excellent indicators for measuring the United States’ productivity in the manufacturing and service sectors. Last month’s services PMI was at 50.2, indicating slight growth in the services industries. The Manufacturing PMI was still below 50 at 48.9 last month, but this number is improving and is extremely close to breaking the 50 mark.
Market Snapshot:
The third quarter of 2023 has been a tumultuous one for the financial markets, with September standing out as a particularly challenging month. This period marked the first instance of tightening financial conditions since 2022, with September witnessing the most significant monthly tightening in a year. A tightening of financial conditions put simply is when the overall flow of money in the economy slows. This shift can be attributed to the Federal Reserve's last rate hike on July 26th.
The dollar experienced a bounce in Q3, but most other assets, including bonds, bitcoin, gold, and stocks, moved lower. Specifically, since the last Fed hike in mid-July, the Nasdaq index which is tech heavy has seen a cumulative decline of 7%. Concurrently, US 10-year note yields have risen from 3.79% to 4.58%. The S&P 500 and Nasdaq both had their worst quarters since Q3 2022, with all major indices ending Q3 in the red. September was particularly harsh, with the S&P and Nasdaq experiencing their most significant monthly losses since December 2022.
In the bond market, Q3 was marked by a surge in long-term yields, with the entire curve witnessing a dramatic increase in yield during September. The bond market's turmoil was not limited to the US; global bonds also faced challenges. Rate change expectations for 2023 remained relatively stable throughout Q3. However, the anticipation of rate cuts in 2024 has decreased considerably, indicating a hawkish tilt in rate expectations.
Some cryptocurrencies like Solana and Ripple performed well in Q3, major players like Ethereum and Bitcoin faced declines of around 10-11%.
In the commodities sector, crude markets thrived in Q3, with oil prices reaching levels not seen since before the Putin Invasion. However, other commodities like copper and precious metals remained stagnant. Gold, in particular, faced challenges, with its price experiencing a 'Death Cross' during the week.
Quip of the Week:"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria." - Sir John Templeton
U.S Equities:
Indexes(Week)
SPX 4,288.05(-0.74%), DJIA 33,507.50(-1.34%),
NASDAQ 13,219.32(0.06%), RUT 1,785.10(0.48%)
Sectors:
It was a rough week for the majority of the market, with most sectors ending negative or neutral. Energy was a clear leader, with it being the only sector clearly in the positive range ending over 1% up. Oil sold off slightly on Friday, but was still positive on the week, impacting the energy sector. Its price increase can be largely attributed to OPEC production cuts, putting lots of upward pressure on oil prices. On the flip side, utilities saw the worst week out of all the sectors, and it did not come close, with it ending near -7%.
Treasuries:
Treasury Yields mixed on the week, higher on the month
Q3 was marked by a surge in long-term yields, with the entire curve witnessing a dramatic increase in yield during September. Rate change expectations for 2023 remained relatively stable throughout Q3. However, the anticipation of rate cuts in 2024 has decreased considerably, indicating a hawkish tilt in rate expectations. On the week all yields except for the two years were higher. PCE or inflation data which came in cooler than expected sent yields lower.
Commodities:
Oil
Oil Prices Dip Amid Macroeconomic Concerns
Oil prices saw a 1% decline on Friday, influenced by macroeconomic worries and profit-taking by investors. Despite this drop, oil prices surged approximately 30% in the quarter, largely due to the OPEC production cuts that tightened the global crude supply. Brent crude for November finished at $95.31 per barrel, a 27% increase for the third quarter. As oil prices approach the $100 per barrel mark, many investors are capitalizing on the rally's profits, especially given the prevailing macroeconomic uncertainties. The chance for a partial U.S. Government shutdown and concerns about China's financial system, particularly with the Evergrande Group scenario, have also impacted the market. Despite the general upward movement in oil prices, the U.S. Oil and fuel rig count number dropped to its lowest since February 2022.
Gold
Gold did not see its best week, as rate hikes are becoming more and more heavily anticipated. Gold is vastly influenced by interest rates, as it is a non-yielding asset, and so during times of high-interest rates, it is not particularly sought after. This “death cross” caused gold to end around -4%.
Crypto:
BTC -27.023, 2.77% ETH - 1,679, 5.78%
BTC Graph (5-day)
Bitcoin saw a good week, ending up about 2.75%. This can be attributed to government shutdown pressures, as analysts predict this shutdown will have a positive impact on the market. The bad news is that Bitcoin ended negative this quarter for the first time in 2023. Bitcoin seems to be struggling to surpass the 27,000 mark and eventually the 30,000 mark.
Europe:
Stoxx 600- 450.22, -0.67% DAX- 15,386, -1.10% FTSE 100 -7,608, -0.99%
DAX Chart (5-day)
Huge news came for the ECB and the entire global market, as EuroZone inflation fell to its lowest in two years. The ECB has been extremely stubborn in achieving its 2% inflation target, and their consistent rate hikes have proved efficient despite the constant backlash. Now that inflationary pressures are becoming less intense, the question comes to whether the now high interest rates and contracting market will cause a recession.
Asia:
XJO (Australia)-7,048, -0.29% Shanghai 180 Index-7,991, 0.43% Nikkei 225- 31,857, -1.68%
XJO Chart (5-day)
Comments