Sep 1, 2023
With the end of summer drawing near, it has been a busy couple of weeks. We had the Fed’s annual conference in Jackson Hole and a whole bunch of economic data, including a new inflation release and the jobs report this morning. When we last talked, the markets were selling off. So, let’s look at where we are now and what mattered in the past couple of weeks.
Truth be told, we are in pretty much the same place as we were two weeks ago. The economy is still growing, but more slowly. Inflation is still too high, and the Fed is worried about it. But the good news is that markets have bounced back a bit since two weeks ago.
Rates Start to Pull Back
There is one thing that is worth discussing. Two weeks ago, we noted that longer-term interest rates popped to the highest levels since about 2008. This was before the Fed’s conference and largely reflected fears about what the Fed might say and do. In fact, nothing much was said or done at Jackson Hole. And since then, rates have pulled back rather than continuing to rise.
That pullback reflects the conclusion, post-conference, that the Fed may be pretty much done, and the weaker economic data has supported that. Job and wage growth slowed in this morning’s employment report, and unemployment jumped. With other inflation measures softening and with no hints of tighter policy, the pullback in rates helped markets recover in the past two weeks. That connection between the two matters because it suggests the Fed could help support markets going forward, which would be a good thing.
Economy and Markets Remain Solid
At the same time, even as slower growth means the Fed may be receding as a market risk, that growth is still solid. Almost all metrics are still historically quite strong, and there is no recession imminent. Despite the worries, both the economy and markets are still doing quite well to finish the summer. And that is not a bad note to end my vacation on.
Have a great long weekend, and I will see you next week!
© Axial Financial Group. All Rights reserved. 1 Van de Graaff Drive, Suite 500, Burlington, Massachusetts, 01803
© 2023 Commonwealth Financial Network®
Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. Basis points (bps) is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.
