It's hard to believe that we are now into the 4Q of 2023, with the holidays upon us! It has been an eventful year and quarter in the world and in markets and we have learned a lot from economic data trends and market reactions to them and other events.
Be sure to check out the full report here, which includes risks of Index Concentration and an academic perspective on Harry Markawitz's contribution to behavioral finance.
- U.S. and global stocks retreated in September and in the third quarter but broadly maintained year-to-date gains.
- The Fed hiked in July, paused in September and left the door open to future rate hikes.
- Treasury yields soared to multiyear highs, weighing on bond returns.
Ultimately the theme is that the economy and the markets continue to display resiliance. A central theme has been the debate over the recent surge in Treasury yields and how the subsequent tightening of financial conditions will impact the Fed's policy stance. The continued inflation trend and strong job market provide some indications.
Nonfarm payrolls grew by 336,000 last month, the strongest month of job growth since January. The prior two months were also revised higher after steady revisions throughout 2023. The unemployment rate held steady at 3.8%, while average hourly earnings growth was 0.2% month-over-month, slightly below consensus. For now, the robust job growth supports the Fed's 'higher-for-longer' approach.
Meanwhile, multiple Fed presidents spoke last week, demonstrating the ongoing debate within the Fed. Most agreed that elevated inflation continues to be a major risk and stressed that the Fed should remain vigilant if economic activity shows signs of reaccelerating. However, multiple Fed presidents also acknowledged the recent move higher in longterm interest rates, which could tighten financial conditions and lessen the need for another rate hike. The market received the message loud and clear, and the probability of a rate hike at the November 1st meeting dropped from 27% on 10/6 to 13% on 10/10.
Despite the horrific events unfolding in the middle east, markets have held up. History shows that markets typically view geopolitical crises as temporary setbacks. We'll note that the past doesn’t predict the future — but it often rhymes.
As always, we remain focused on data and on the foundational principals of financial planning and diversification. Let us know what's on your mind and let's talk.
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