Market Update: September 19, 2023
Economic data for the week included mixed producer and consumer inflation results, with headline numbers driven by higher energy costs. Retail sales, industrial production, and regional manufacturing results showed gains for the prior.
Equities ended with flattish returns in the U.S., underperforming foreign stocks, which saw gains. Bonds fell back along with higher interest rates across the yield curve. Commodities gained last week, led by continued supply concerns in crude oil.
U.S. stocks ended flattish on the week, with sectors mixed, seeing gains in utilities, consumer discretionary (solely due to gains in Tesla), and financials. Technology was the sole decliner of several percent, with some degree of disappointment about Apple’s annual fall product event last week. Real estate ticked slightly higher, despite a rise in interest rates. Stocks closed the week on a sourer note, as data from China came in more positively, weakening the case for additional stimulus there that markets had hoped for. The U.S. auto worker strike also began, being the first time where all three domestic automakers were targeted in a century, which economists have predicted could negatively affect spending and GDP growth if it continues for an extended period. At the same time, decent economic data and rising energy prices as of late threatens another Fed rate hike—even if not for this coming week’s meeting (as futures markets point to overwhelming odds of no change).
By contrast, foreign stocks gained in both developed and emerging markets. Stocks in the U.K. and Japan led world markets, up several percent, outperforming Europe, which also fared decently. The ECB raised rates for the 10th time, by 0.25% to 4.0%, while also hinting that they could be reaching a peak in policy rates. At the same time, economic growth forecasts for Europe have declined by several tenths in recent weeks to under 1%, with an outright decline expected in Germany, which serves in important role as the EU’s manufacturing core. In EM, Brazil led with a 5% gain in USD terms, dominating other regions as inflation data came in better than expected. China saw little change, in contrast to prior weeks, with stronger industrial production and retail sales data offset by continued concern over property markets. The central bank also lowered reserve requirements for banks by a quarter-percent, keeping the stimulus response thus far fairly modest.
Bonds fell back last week, as interest rates continued to tick higher upon decent economic growth results in the U.S. (at least not pointing to recession as of yet). Floating rate bank loans continued to work in the opposite direction, seeing gains of a half-percent, having provided leadership in the fixed income group over the past year. Foreign bonds were mixed to lower, with the headwind of a stronger dollar.
Commodities rose several percent last week, with strong gains in energy and industrial metals. Crude oil prices rose nearly 3% to $90/barrel, due to continued OPEC production cut expectations, as well as signs of improving Chinese demand, and Russia potentially banning oil product exports in order to stabilize prices higher (which becomes a self-fulfilling prophecy to an extent).
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.