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September 24, 2023
FED LEAVES RATES ALONE: Fed Reserve officials met last week and voted to hold interest rates steady, making it clear they expect to keep rates higher through all of 2024. That is longer than some of their earlier communications indicated. Stock investors did not like the news, and markets slid. Most of the Fed officials seem to be in favor of one more rate hike this year. Investors are now going to have to get used to rates staying elevated for an extended period of time. Get ready for 2024 where we try to parse every bit of economic data to determine when the Fed might start to lower rates.
BANK OF ENGLAND FOLLOWS SUIT: For the first time since November 2021, the Bank of England did not raise rates, leaving its key rate at 5.25%.
HERE WE GO AGAIN ON THE GOVERNMENT SHUTDOWN THREATS: The U.S. House of Representatives, has until October 1 to get enough votes to pass a spending bill. Historically, U.S. stocks have been resilient during shutdowns, but every situation is different. Government shutdowns historically have negatively affected economic growth. Such an occurrence would likely influence the Fed to not raise rates again this year. Once the Congress comes back into session next week, the daily drama will likely cause some volatility in the U.S. markets.
THIRD STRAIGHT WEEK OF LOSSES: The S&P 500 registered its third straight week of losses largely due to investors’ reaction to Fed comments about keeping rates elevated for longer. Now investors must consider how elevated borrowing costs will affect consumers and companies, and how much money normally invested in the stock market is going to move to bonds with much higher yields.
LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.
SOMETIMES A CHART TELLS THE WHOLE STORY:
DON’T EXPECT LONG-TERM RELIEF AT THE GAS PUMP: Oil prices have an obvious impact on gasoline prices. Prices for oil are expected to rise over the course of the coming year as OPEC is lowering production and global demand is increasing. Production is ramping up in the U.S. as the supply chain issues affecting drilling and oil well completion have eased, but increased demand from China, India and other parts of the world is likely to grow faster than production.
LABOR MARKET STAYS STRONG: Last week there were only 201,000 initial claims for unemployment insurance, 20,000 less than last week. Initial claims came in lower than expected and are staying in a very low range.
JAPAN CENTRAL BANK KEEPING IT LOOSE: Japan held rates steady, as did the U.S. and England. The difference is that Japan, the world’s third largest economy, is keeping their short-term rates at -0.1%. They want to keep their ten-year bond yield near zero. It has suffered through years of deflation and is trying to spur higher wages and boost spending. But, the yen has dropped in value by 11% against the dollar this year and it could get more inflation than it wants. Time will tell.
POLITICS: According to a new Pew report, 65% of Americans say they always or often feel exhausted when thinking about politics. 55% feel angry when they think about politics. 10% feel hopeful. 4% feel excited when thinking about politics. Disclosure: I have a bachelors’ degree in political science. I don’t get excited when thinking about politics.
HAPPY TO VISIT: Deb and I took a very quick trip to the Wilmington, North Carolina area so I could visit with clients. We stayed a night in a small coastal town near there called Southport. It calls itself one of the happiest places in America. It is a beautiful little town, and we had perfect weather to enjoy it!
…AND FINALLY: Me enjoying the backyard before the wet weather hit.
Have a great week!
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SOURCES: POLITICS: https://www.thefp.com/p/nellie-bowles-tgif-ennui-the-people JAPAN CENTRAL BANK KEEPING IT LOOSE: gritcap.io DON’T EXPECT LONG-TERM RELIEF AT THE GAS PUMP: https://link.chtbl.com/sUDge1nu?sid=Briefings SOMETIMES A CHART TELLS THE WHOLE STORY: gritcap.io FED LEAVES RATES ALONE: https://www.wsj.com/economy/central-banking/federal-reserve-powell-interest-rates-ba600bf0?mod=economy_trendingnow_article_pos4 BANK OF ENGLAND FOLLOWS SUIT: https://www.wsj.com/economy/central-banking/bank-of-england-rate-decision-september-87d20f5a?mod=economy_feat1_central-banking_pos2 LABOR MARKET STAYS STRONG: https://www.dol.gov/ui/data.pdf
(c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved
*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets. *MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States. *Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.
Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.
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