Weekly Market Report: September 1st, 2023

Equity markets put a challenging August in the rearview mirror last week with a bounce higher from short- term oversold levels. Highlights of the week included a very busy economic calendar which seemed to have left markets with somewhat of a Goldilocks feeling heading into the long Labor Day weekend. U.S. markets closed up 2.5%-3.5% while non-U.S. markets were up 0.75%-0.90%. We saw a recovery rally across technology, consumer, and communications while defensives lagged. WTI crude oil rallied to a new 2023 high, now back up over $85, and took the wider commodity complex along for the ride while bond yields retreated further, particularly in the 2-5yr belly of the curve.

Market Anecdotes

  • Bespoke reminded us that while September has historically been the worst month of the year (DJIA), October-December have historically been the best. That said, comments like that call for a reminder of the cost of timing the market which, absent a crystal ball, really doesn’t work well.
  • The first eight months of the year have been highlighted by dominant growth stocks and lagging small cap stocks. Additionally, they have produced a welcomed mirror image of 2022 when both stocks and bonds fell sharply. 2023 has seen robust gains in stocks and marginal gains in bonds.

  • U.S. equity market valuations remain alarmingly high (technology orientation), but non-U.S. market valuations are solidly attractive while market breadth is at its narrowest since 2003.

  • Last week’s inflation and job market data sent a dovish ‘JOLT’ into markets last week with softer economic data translating to increased expectations for Fed cuts in 2024.

  • A new Financial Conditions Index (FCI) created and monitored closely by the Fed suggests conditions have relaxed back toward a neutral effect on growth thanks largely to the robust equity market rally and resilient housing market valuations.

  • An illustration from MSCI lays out the increasing stress happening in commercial real estate with distress and foreclosure counts both clearly on the rise.

  • China announced a tax cut on trading and that it plans to take more stimulative steps, but the 2023 equity market is not projecting a favorable runway looking forward with the belief that more concrete steps are needed.

Economic Release Highlights

  • July Employment Report registered 187,000, above consensus estimate of 170,000 and near the high end of the forecast range of 40,000-190,000. The unemployment rate increased from 3.5% to 3.8% and labor market participation increased 0.2% to 62.8%.
  • Average Hourly Earnings grew 0.24% MOM and 4.29% YOY while Personal Income grew 0.20%, all in line with consensus and slightly lower versus the prior month’s pace.
  • July’s JOLT Survey reported a notable decline in job openings from the prior month 9.165mm reading to 8.827mm, well below consensus forecast of 9.559mm and the forecast range of 9.524mm – 9.570mm. The opening to unemployed ratio has fallen from 2.0 to 1.5 since January.
  • July headline PCE inflation registered 3.28% YOY alongside core readings of 0.20% MOM and 4.24% YOY. Personal Consumption increased from 0.63% to 0.79% MOM.
  • U.S. August ISM Manufacturing Index beat consensus (47.6a vs 46.8e) and the final Manufacturing PMI was revised higher from 47.0 to 47.9.
  • The August J.P. Morgan Global Manufacturing PMI improved slightly from 48.6 to 49.0.
  • 2Q GDP (second estimate) was revised downward from 2.4% to 2.1%, well under the forecast range of 2.4%- 2.5%.
  • Consumer Confidence in August came in well short of expectations (106.1a vs 116.5e) and well below the consensus estimate range of 113.0-119.3).
  • June Case Shiller Home Price Index grew 0.9% MOM but declined 1.2% for the year, both generally in line. July Pending Home Sales (0.9%a vs -0.4%e) were stronger than expected.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
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