Economic Update 9-25-2023
- Economic data for the week included the Federal Reserve keeping interest rates unchanged but kept language relatively hawkish. Housing data was negative, with a drop in existing home sales as well as starts and homebuilder sentiment, although building permits improved. The index of leading economic indicators remained in a negative trend.
- Global stocks fell back last week, due to the hawkish tone of central bank commentary, as opposed to actual rate hikes done, as well as idiosyncratic economic stresses. Bonds fell back, directly due to the rise in longer-term yields. Commodities were mixed, with crude oil prices little changed for the week.
U.S. stocks began decently, but fell back starting just after the FOMC meeting, as investors took Chair Powell’s comments regarding policy as ‘higher rates for longer.’ Naturally, this serves to pressure the economy, and notably earnings, further. The UAW strike has also intensified from only three plants to now nearly 40 around the nation, with uncertain duration and impact, in addition to a potentially upcoming government shutdown. Thursday’s decline, while not severe, was the largest in six months. As it stands, the S&P 500 is down -6% from its peak in late July (drawdowns can be stealthy, with September again proving its negative reputation).
Every sector declined in value last week, led by consumer discretionary down -6% (pulled down by Tesla and Amazon, together which represent 50% of the sector, among others), as well as more cyclical materials and financials. As expected, more defensive utilities, health care, and consumer staples held up better, with lesser but still-present declines. Real estate fell back over -5% with a significant move higher in interest rates, affecting financing conditions and required cap rates. Small cap stocks fared significantly worse than large cap, presumably more negatively affected by higher financing rates as well.