Market Update— Quarter Ending September 30, 2023
Presented by Bruce Hosler
- Equity markets fell for the second consecutive month in
September, causing all three major U.S. indices to end
the month and quarter in the red.
- Rising rates and concerns of a potential month-end
government shutdown weighed on equities.
- While consumer confidence fell in September, spending
has stayed resilient this year
- Equity markets fell for the second consecutive month in
September sell-off caps quarter
The S&P 500 lost 4.77 percent for the month and 3.27 percent for the quarter. The DJIA was down 3.42 percent in September and 2.10 percent for the quarter. The Nasdaq Composite dropped 5.77 percent for the month and 3.94 percent for the quarter. Earnings reports showed signs of better-than-expected fundamental performance for the quarter. Per Bloomberg Intelligence, as of September 14, 2023, the second-quarter blended earnings decline for the S&P 500 was 5.8 percent. Technical factors were mixed in September; the S&P 500 and Nasdaq Composite finishing above their respective 200-day moving averages while the DJIA finished below trend. The MSCI EAFE Index dropped 3.42 percent in September and 4.11 percent in the quarter. The MSCI Emerging Markets Index was down 2.58 percent for the month and 2.79 percent for the quarter.
Fixed income falters as rates rise
The 10-year U.S. Treasury yield rose from 4.03 percent at the end of August to 4.59 percent at the end of September. The Bloomberg Aggregate Bond Index lost 2.54 percent for the month and 3.23 percent for the quarter. The Fed kept the federal funds rate unchanged at its September meeting, but Fed Chair Jerome Powell indicated in his post-meeting press conference that the Fed may hike rates further this year and keep them higher for longer, if deemed necessary, to combat inflation. High-yield fixed income also experienced declines in September. The Bloomberg U.S. Corporate High Yield Index lost 1.18 percent in September. Despite the decline last month, the index eked out a 0.46 percent gain for the quarter. High-yield bond spreads rose from 3.85 percent in August to 4.09 percent in September, signaling rising investor caution.
Economic growth continues
September’s economic updates showed signs of continued economic growth. The August job report showed solid growth, with the labor force participation rate rising to a three-year high in August while the unemployment rate remained low. The healthy labor market supported personal income and spending growth in August, as well as better-than-expected retail sales growth. Business spending showed signs of improvement in September. Headline and core durable goods orders both increased more than expected in August, marking four consecutive months with rising business investment. Business confidence also improved, with both manufacturer and service sector confidence increasing. While headline consumer inflation accelerated in August due to rising food and energy costs, core inflation continued to fall. Core consumer inflation fell to 4.3 percent on a year-over-year basis in August, marking the smallest year-over-year increase since September 2021. While there is still real work to be done to get inflation back to the Fed’s 2 percent target, the improvements we’ve seen so far this year indicate that we’re making progress in the fight against inflation.
Solid foundation for the fourth quarter
Despite the pullback for markets during the month and quarter, economic fundamentals remain solid. The continued strength of the labor market should help support continued consumer income and spending growth through the end of the year. With business spending set to remain strong and further progress expected on inflation, the fundamentals are in place for a positive end of the year. We’ve seen a number of political and economic risks impact markets throughout the course of the year, and September’s government shutdown saga was another reminder that real risks remain for investors. The most likely path forward is for a return to market appreciation and continued economic growth. With that said, there are risks that remain to that outlook that could lead to short-term volatility. As always, a well-diversified portfolio that matches investor timelines and goals remains the best path forward for most. If you have concerns, you should reach out to your financial advisor to discuss your current plan.
Figure 1. Conference Board Consumer Confidence, 2011–Present
Source: The Conference Board, Haver Analytics
Market Commentary Disclosure
All information according to Bloomberg, unless stated otherwise.
Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not
guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a
profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average
of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common
stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE
Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market
capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed
markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Aggregate Bond Index is an unmanaged market value-weighted index representing
securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg
government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg U.S. Corporate High Yield Index covers the USD-denominated, noninvestment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
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