Weekly Market Commentary – 9/22/2023
-Darren Leavitt, CFA
US equity markets sold off in tandem with the US Treasury market as the Federal Reserve’s Open Market Committee meeting concluded with no change to its policy rate. The Fed’s Summary of Economic Projections indicated that another rate hike could be in play and also sent a clear message that rates are likely to be higher for longer. The Bank of England decided to keep its policy rate at the same level; however, the vote was 5 to 4, signaling division in the path of their monetary policy. The Swiss National Bank surprised by keeping its rate unchanged, while the Norges Bank and Sweden’s central bank decided in favor of a 25-basis point hike. The Hong Kong Monetary Board kept their rate unchanged at 5.75%.
The S&P 500 lost 2.9% and fell below 4400 after breaking its 50-day moving average in the prior week. The Dow gave up 1.9%; the NASDAQ tumbled 3.6% as mega-cap tech struggled, and the Russell 2k slumped 3.8%. US Treasuries fell again, with yields on the 2’s and 10’s hitting cycle highs. The 2-year yield increased by eight basis points to 5.12%. The 10-year yield rose by twelve basis points to 4.44%. There is real concern that if the 10-year yield eclipses 4.5%, there could be trouble ahead for risk assets.
Oil prices fell $0.73 to $90.27 as Wall Street continued to increase estimates of where crude could end the year. Gold prices were little changed, closing a dime higher at $1945.70 an Oz. Copper prices closed down $0.10 to $3.70 a lb. The US Dollar strengthened as central bank policy and projections for future rate hikes diverged across different geographies.
Economic news showed a stubborn labor market. Initial claims fell to 201k versus the estimate of 230k. Continuing Claims decreased to 1662k from the prior week’s figure of 1683k. The UAW strike continues and may start to impact these numbers in the future if negotiations remain in a stalemate. Housing data was mixed with better-than-expected weekly Mortgage Applications, lighter-than-expected existing home sales, and Housing Starts, while Housing Permits came in a bit better. Global Manufacturing and Services data showed manufacturing in contraction as services trending lower.
This week, the markets will digest another round of Treasury issuance. $48 billion in 2 years, $49 billion in 5 years, and $37 billion in 7 years will be auctioned, again a cycle highs. Economic data will include the 3rd estimate of Q2 GDP and the Q2 GDP Deflator, Personal Income and Spending, and the Fed’s preferred measure of inflation, the PCE.
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