Market Update: November 27 - December 1, 2023

Weekly Summary

Several key pieces of economic data were released last week that implied inflation in the US and Euro Zone is continuing to moderate as hoped by the Federal Reserve. Both equity and fixed income markets were slow heading into this week but reacted positively to the release of these inflation metrics on Thursday and Friday. Natural gas prices fell early in the week but returned to previous levels, while oil prices decreased slightly after an OPEC+ meeting signaled that the cartel may have difficulty coming to agreements in the future.

Economic Data

The most significant piece of economic data released last week was the Personal Consumption Expenditures Price Index. The core version of this index, which excludes volatile food and energy prices, is the Federal Reserves preferred measure of inflation and is therefore followed extremely closely by investors. Both core and headline PCE released at the expected rates of 3.5% and 3.0%, respectively. Core inflation in the Euro Area released the same day at 3.6%, under the forecasted 3.9%. Another metric of US inflation, the Consumer Price Index, is set to release December 12^th, one day before the Federal Reserve makes its final rate decision of the year.

Equities

As stated earlier, the first half of the week was very slow for equity markets but a positive reaction to inflation readings led to strong performance on Thursday and Friday. This capped off what has been an excellent month of performance across equity markets, with the Dow Jones Industrial Average now posting gains for five weeks in a row. Previously underperforming segments of the market like small and mid cap stocks overperformed ending the week up about 3.5% and 2.9%, compared to 0.9% for the large cap S&P 500. The S&P 500 then reversed some gains this Monday but has still appreciated about 4.8% in value over the past month.

Fixed Income

Fixed income rates fell across the yield curve last week following the inflation data releases, driving bond prices up. These inflation metrics releasing at or below expected levels near unanimously solidified the consensus that interest rates have already peaked at current levels. Futures markets are now making a 99.7% prediction that there will be no rate increases at the December Federal Reserve meeting, and a 0.3% chance that rates may even be decreased. By the March meeting the probability of a rate decrease from current levels is 58.1%.

Commodities

Last week the main driver of oil prices was an OPEC+ meeting that was previously delayed. The cartel announced further production cuts but that these cuts would be “voluntary,” signaling that OPEC+ countries may have difficulty coming to agreements in the future. Perhaps most notable was Angola’s statement that it will not comply with these production quotas. This resulted in oil prices falling slightly unlike the usual price increases that follow OPEC+ production cuts. Natural gas prices fell early in the week but then increased back to previous levels. The US has continued to increase exports of natural gas, but reserves in Europe are starting to fall as the continent finally begins to experience winter weather. Gold and silver performed well again last week as the dollar has continued to depreciate in comparison to other currencies.

Interesting Articles

Market Update: November 20 - 24, 2023

Weekly Summary

Last week was fairly uneventful with markets closed on Thanksgiving and only open for a half day on Black Friday. This Thursday the Personal Consumption Expenditures Price Index measure of inflation will release. PCE is the preferred inflation measure of the Federal Reserve and the release will have a major impact on whether the Fed decides to increase interest rates again this cycle. Inflation data for the Euro area will release the same day and is also likely to have an impact on markets, although to a lesser extent than PCE.

Economic Data

Last week Canada reported inflation of 3.1% versus the expected 3.2%. This was considered a positive sign for upcoming US inflation metrics because the two economies are so closely intertwined. The following day US consumer sentiment released at 61.3 versus the expected 60.5, with any reading above 50 indicating consumer sentiment is becoming more positive. Consumer sentiment tends to be considered even more important as we approach the end of the year as holiday spending is often viewed as an indicator of the current state of the economy.

Equities

Equity markets performed well on Monday with the S&P-500 gaining about 0.99%. Some of these gains were reversed the following day but the index ultimately ended the week up 0.84%. The tech heavy Nasdaq-100 also performed well ending the week up 0.86%, then gaining an additional 0.25% as of this Monday afternoon. Equity markets are expected to be more volatile than normal following the PCE release before markets open on Thursday. Previously underperforming portions of the equity markets performed well after the Consumer Price Index measure of inflation released at lower-than-expected levels earlier this month. If PCE follows the same pattern we may see a similar performance from investments such as small cap and emerging market stocks.

Fixed Income

Last week fixed income markets were even less volatile than equity markets. Short term interest rates increased slightly, with the two-year treasury yield increasing from 4.88% to 4.94%. Long term rates were essentially unchanged after dropping earlier this month following the CPI release. As the next Federal Reserve meeting draws closer the probability of a rate hike in January or March has slightly increased. This is fairly normal as many investors use the future contracts used to determine these probabilities as a hedge in an attempt to limit potential losses in the case that interest rates increase. Despite this there is still only a 6.9% prediction that rates will increase at the January meeting early next year, and an even lower probability that rates will increase at any of the following meetings next year.

Commodities

Oil prices continued to slowly fall last week and fell even further Monday morning after it was announced that an OPEC+ meeting was delayed until later in the week. OPEC+ countries produce about 40% of the world’s crude oil and are able to have a large effect on oil prices by increasing or lowering production. OPEC+ has limited production since last November driving oil prices higher but is currently expected to increase production sometime next year. Gold and silver performed well last week as the dollar has continued to weaken in comparison to other currencies.

Interesting Articles

Market Update: November 13 - 17, 2023

Weekly Summary

Both equity and fixed income markets rallied last week after the release of unexpectedly low inflation data. As inflation continues to fall the possibility of a so called “soft landing” appears to be more and more realistic, meaning the Federal Reserve will be able to slow the economy without a large increase in unemployment. Markets are in near unanimous agreement that interest rates have peaked this cycle and will fall within the next year at the latest. This week can be expected to be slower than normal with markets closed completely for Thanksgiving and closing early on Black Friday.

Economic Data

Last week all eyes were on the release of two key inflation measures. On Tuesday the Consumer Price Index released at 3.2%, just under the forecast of 3.3%. Core CPI, which excludes volatile food and energy prices, also released below expectations at 4.0% versus the forecasted 4.1%. The next day the Producer Price index released even further below expectations at only 1.3% versus the forecasted 1.9%. With unemployment still low these inflation readings were an excellent sign for the economy and strengthened expectations that interest rates have peaked at current levels. The Personal Consumption Expenditures Price Index, a measure of inflation preferred by the Federal Reserve, will release November 30^th giving the Fed two weeks to analyze the data before their next meeting on December 13^th.

Equities

Lower than expected inflation readings caused an extreme rally in the equity market with the S&P 500 up almost 2% on Tuesday alone. The positive PPI release the following day resulted in another small boost to the markets which held through the rest of the week and weekend. Previously underperforming sections of the market also performed well with small cap stocks gaining over 5.0%. Overall November has been an excellent month for equity markets across the board and the S&P 500 is quickly approaching the highs reached in July of this year.

Fixed Income

Fixed income markets also performed well with interest rates falling across the yield curve. We recently made the decision to extend the duration of one of our portfolios, meaning the average length of bonds held was increased. Locking in these high rates for longer periods of time will result in higher performance in the event that rates continue to fall as they did last week. Low inflation readings also decreased expectations that the Fed will continue to increase interest rates. Futures markets now predicting only a 2.1% chance of a rate increase this cycle and expect interest rate cuts from the Fed as early as the middle of next year.

Commodities

Oil prices fell late last week but quickly recovered to the previous week’s prices over the weekend. Natural gas prices followed a similar pattern but continued to fall on Monday resulting in the lowest prices in over a month. Low inflation data resulted in a weaker dollar which caused the price of both gold and silver to rally. Notably gold broke over the $2,000 per ounce range which has recently been seen as a point of psychological resistance.

Interesting Articles

Market Update: November 6 - 10, 2023

Weekly Summary

Last week was fairly slow when it came to economic releases and market performance. However, this week is expected to be more volatile due to two key inflation measures releasing Tuesday and Wednesday. The most notable surprise last week was weaker than expected consumer sentiment in the US, a potential indicator that the US economy is cooling after unexpectedly high growth last quarter. Overall markets were more calm than normal last week with equity indexes performing well and energy prices falling in a positive sign for short term inflation.

Economic Data

On Tuesday inflation data for China released at -0.2%, slightly lower than the forecast of -0.1%. China is one of the few major economies that is currently facing deflation rather than inflation due to an abnormally weak demand for manufactured goods and a struggling real estate sector. Few other major pieces of economic data released last week, though US consumer sentiment was weaker than expected. This is a further piece of evidence that consumer spending is decreasing and should help slow price increases due to weaker demand. This Tuesday the US consumer price index, a major measure of inflation, will release and is likely to have a strong impact on the Federal Reserve’s final meeting of the year in mid-December. The following day the producer price index will release, a measure of inflation relating to companies rather than consumers. The producer price index is often seen as a leading indicator for consumer inflation as companies tend to pass on short term price changes to customers.

Equities

The upward trend in equity markets continued last week following strong performance the week before with the S&P 500 ending the week up 1.1%. The tech heavy Nasdaq-100 also performed well after several strong earnings reports finished off the third quarter. Weak consumer sentiment did not seem to affect equity markets on Friday though the S&P did reverse some of its gains over the weekend. Despite this the index is up over 6.9% from the lows reached in late October and if the rally in equity markets continues the S&P will soon approach the all-time highs achieved in January of 2022. On Friday Moody’s, one of the three major credit rating agencies, suggested it may downgrade the US due to concerns over a growing budget deficit and potential government shutdown. This was expected to put downward pressure on US equity prices though as of Monday morning it appears to have had little effect. Equity markets should be expected to be more volatile than average this Tuesday and Wednesday surrounding the release of inflation data.

Fixed Income

Fed Chair Jerome Powell made two public speeches last week and appeared to downplay some of the more optimistic remarks made after the previous week’s Fed meeting. Powell emphasized that the Federal Reserve is “not confident” that current rates will bring inflation back to the 2% target, echoing remarks made by Fed officials after policy decisions earlier this year. This resulted in futures markets predicting a slightly higher chance of further hikes this cycle with the probability of a rate increase by January now over 25%. Climate activists have repeatedly attempted to disrupt Powell’s public statements in the past several weeks although the most recent interruption was considered a minor distraction and Powell was later able to finish his remarks. Long term rates were largely unchanged last week after falling dramatically the week before, though “medium term” rates in the two-to-ten-year range rose slightly.

Commodities

Oil prices fell again last week after weaker than expected demand was predicted in both the US and China. West Texas Intermediate Crude Oil, often abbreviated as WTI, is now trading significantly lower than the long-term estimate of $82.00 at only $77.50 per barrel. Natural gas prices also fell as investors continue to bet that weather will be milder this winter than in previous years. The price of gold and silver fell slightly but could see major gains this week if inflation comes in higher than expected. While gold itself is not an income producing asset its often used by investors to diversify portfolios and is seen as a defensive investment against high inflation.

Interesting Articles

Market Update: October 30 - November 3, 2023

Weekly Summary

Markets were optimistic heading into Wednesday’s Federal Reserve meeting following the release of mild inflation data and strong GDP growth the previous week. The Federal Reserve made the decision to hold rates steady as expected, and Fed Chair Jerome Powell made statements at the following press conference that were perceived as hinting towards a lower chance of rate hikes in the future. This, along with Friday’s unemployment release, caused long term fixed income rates to drop significantly while equity markets had their strongest week so far this year. Commodity prices were flat with the price of oil, natural gas, gold, and silver all largely unchanged.

Economic Data

As we transition into November several key pieces of macro-economic data for the month of October were released. On Monday Germany surprised economists by reporting an annualized GDP decrease of 0.3% versus the expected decrease of 0.7%. Inflation in Germany also fell from a 4.5% annualized rate in September to a 3.8% in October, lower than the expected 4.0%. Manufacturing demand was slightly lower than expected in China putting mild downward pressure on energy prices while the Bank of Japan decided to leave its short-term interest rate target at -0.1%. The following day the Euro Area released core inflation readings at the expected 4.2% annualized rate but had a weaker than expected GDP growth rate of 0.1% versus 0.2%. On Friday the US announced that unemployment had increased slightly in October from 3.8% to 3.9%. This week inflation data for China and GDP growth for the United Kingdom are both set to release.

Equities

US equity markets had their best week of the year so far with the Dow Jones Industrial Average and S&P 500 both gaining over 5.0% while the Nasdaq Composite gained over 6.5%. The stock market started the week off strong following the previous week’s release of abnormally strong GDP growth despite cooling inflation, then finished even stronger after the US reported slightly higher than expected unemployment on Friday. While increasing unemployment would traditionally be seen as a negative sign for the economy, this report was considered a positive for equity markets in the short term as it implies that the Fed is making progress towards its goal of slowing down the economy and continuing to reduce inflation. Over 80% of companies in the S&P 500 have now presented third quarter earnings reports and earnings within the index are currently on track to increase 5.7% from a year earlier. Major companies reporting earnings this week include Disney, Warner Bros. Discover, MGM Resorts, and Uber.

Fixed Income

Long term rates fell dramatically last week, breaking the trend of consistent increases that began in early September. This was initially driven by the Fed hinting that rising long-term yields may reduce the need for further hikes this cycle, then accelerated after higher-than-expected US unemployment was announced on Friday. Both the Federal Reserve and Bank of England followed the European Central Bank by leaving rates unchanged at 5.5% and 5.25% respectively. Official statements by the Federal Reserve during policy meetings have remained largely unchanged over the past several months, but responses by Fed Chair Jerome Powell shortly after last week’s meeting imply that may soon change. During a press briefing Powell stated that “The question we’re asking is: Should we hike more?” and that “Slowing down is giving us […] a better sense of how much more we need to do, if we need to do more.” These statements were considered less ‘hawkish’ than previous responses by Powell, meaning that the Federal Reserve is expecting a low chance of further rate increases this cycle.

Commodities

Oil prices were less volatile last week compared to earlier this month, trading in the $81.00 to $83.00 a barrel price range as investors become less concerned about the potential impact of the Israel-Hamas conflict. Natural gas prices rose slightly late last week before falling to previous levels this Monday morning after it was announced that Europe’s natural gas storage is at a record high despite falling temperatures across the continent. Gold and Silver prices remained steady for the second week in a row after a mild rally in precious metals that began in early October.

Interesting Articles

Market Update: October 23 - 27, 2023

Weekly Summary

Last week the Bank of Canada and European Central Bank decided to keep interest rates steady in a signal that they believe inflation is moderating beyond the US. US GDP growth for the third quarter was much higher than expected while PCE inflation readings released at expected levels. This has led to optimism going into the Federal Reserve meeting this Wednesday where US rates are also expected to remain steady. Long term fixed income rates rose again last week although less dramatically than in the previous two weeks. This continues to put pressure on equity markets that must compete with a higher guaranteed return, and to consumers and companies through a higher cost of personal and corporate debt. Oil prices are still somewhat more volatile than normal, but prices fell last week as fears over the Israel-Hamas conflict’s global impact begins to moderate.

Economic Data

On Monday inflation in Australia released at 5.4% versus the expected 5.3%, but still down from last month’s 6.0% reading. On Wednesday the Bank of Canada announced they would hold interest rates steady at 5.0% for the third meeting in a row. The following day the European Central Bank announced they would also leave their 4.5% rate unchanged at the first ECB meeting without a rate increase in over a year. This coming Wednesday the Federal Reserve will announce its interest rate decision and is also expected to hold rates steady. US GDP grew at a 4.9% annualized rate in the third quarter, far higher than both the predicted 4.3% and the second quarter growth rate of 2.1%. Finally, both the headline and core Personal Consumption Expenditure Index measures of inflation released at the expected 3.4% and 3.7% respectively. These final two pieces of economic data, along with a currently low unemployment rate, imply that the US economy is still strong and defying previous predictions of a recession.

Equities

Equity markets were down again this week with the S&P-500 losing 2.4% and the NASDAQ-100 down 2.9%. As of this Monday many of these losses were reversed with both indexes gaining back over 1.1% over the weekend. Several major tech companies including Microsoft, Alphabet, Meta, Intel, and Amazon reported earnings last week with all besides Intel reporting higher than expected revenue and income. Despite this equity markets struggled to compete with long term fixed income investments with 10-year treasuries yields now hovering near the 5.0% range. However, short term interest rates seemingly coming to a peak, resilient economic growth, decreasing inflation, and strong corporate earnings paint an optimistic picture for equity markets in the coming months.

Fixed Income

Long term rates rose again last week although the change was far less dramatic than the week before. 30-year treasury yields remained over 5.0% while the 10-year traded in the 4.8% to 4.9% range, occasional breaking over the 5.0% milestone. The opportunity to lock in these long-term returns have put pressure on equity markets and borrowers. Higher long-term rates are passed on to consumers through increased rates on mortgages and other forms of debt, and to companies that must issue bonds at rates that can compete with treasuries. Under current market conditions the return on bonds is also asymmetric, meaning the gain after a 1.0% decrease in rates would be higher than the loss after a 1.0% increase in rates. This is especially true for long term fixed income investments as they are inherently more sensitive to interest rate changes. Futures markets are still predicting that short term rates have peaked at the Fed’s 5.25% to 5.50% target with the probability of a rate increase the highest in January at 40%.

Commodities

The Israel-Hamas conflict continues to cause increased volatility in oil prices with the World Bank now warning that prices could reach as high as $150 a barrel if the conflict intensifies in a repeat of the 1970’s supply shock. However, this should only be considered a worst-case scenario as the middle east is currently responsible for a much smaller percentage of global oil exports compared to that period. Current predictions are that overall commodity prices will fall around 4% in the next year with oil remaining around $82 a barrel. Natural gas prices increased slightly last week reversing the drop in prices from the week before as temperatures continue to fall. Gold and Silver prices remained steady following the mild rally in precious metals that began early this month.

Interesting Articles

Market Update: October 16 - 20, 2023

Weekly Summary

Last week inflation data for several major countries released at or below expectations, painting an optimistic picture that price levels are continuing to stabilize globally. This Friday US Core PCE, the measure of inflation most closely watched by the Federal Reserve, is set to release while the Fed will make its next interest rate decision the following Wednesday. Long-term rates rose sharply last week, providing investors with an opportunity to lock in higher-than-normal yields and causing equity markets to struggle to compete with fixed income markets. Uncertainty surrounding the conflict between Israel and Hamas caused increased volatility in oil prices and continued to put upward pressure on precious metals like gold and silver.

Economic Data

Last Monday inflation in Canada released at 3.8%, under the forecast of 4.0%. US retail sales grew by 0.7% in the month of September, higher than the expected 0.3% in a sign that the economy remains resilient despite rising rates. Chinese GDP also grew more than expected at 4.9% annually versus the forecasted 4.4%. On Tuesday core inflation in the UK released at 6.1% below the expected 6.6%, while core inflation in the Euro Area was as expected at 4.5%. Finally, on Thursday Federal Reserve Chair Jerome Powell gave a speech at the Economic Club of New York Luncheon and spoke positively about the current direction of inflation, the labor market, and economic growth. However, he remained consistent with the Fed’s previous position that further tightening may still be necessary as long as core PCE remains above 3.0%. August’s core PCE inflation reading was 3.9% and September’s reading is set to release Friday morning.

Equities

Equity markets struggled to compete with rising fixed income rates last week with the S&P-500 falling about 2.4% and the NASDAQ-100 falling about 2.6%. Despite this the S&P-500 has still performed above average this year and is up about 9.7% from the lows reached in March following the regional banking crisis. In other positive news the VIX, a measure of volatility in the S&P-500, fell from a seven-month high on Monday morning. The VIX is often referred to as the market’s “fear index” or “fear gauge” as it tends to increase during times of uncertainty and decrease during bull runs in equity markets. Only about one fifth of S&P-500 companies have reported earnings for last quarter so far and earnings for several major companies including Microsoft, Alphabet, Meta, Intel, and Amazon will release later this week.

Fixed Income

Interest rates were more volatile than normal last week with further large moves in the long end of the yield curve. Yields on 10- and 30-year treasuries increased by roughly 0.3% with the 30-year yielding over 5.1% Monday morning. 30-year treasuries are now yielding more than their 2-year equivalent, another step in the yield curve reversing from its currently inverted state. An inverted yield curve has historically been a predictor of a coming recession, so this reversal is a positive sign for the overall state of the economy. Expectations of a rate increase at the November 1^stFed meeting dropped last week with there now being a 98.5% prediction of no rate increase and a 1.5% prediction of rates falling. Futures markets continue to imply that peak rates have already been reached although there is still a roughly 35% prediction of one more rate increase before the end of this cycle.

Commodities

Oil prices rose slightly last week though the current price of about $87.00 a barrel is still below the highs of over $93.00 reached in late September. Price increases earlier this year were mostly the result of reduced supply from OPEC and ongoing Russian sanctions, but the more recent short-term increases are correlated with increasing uncertainty surrounding the conflict between Israel and Hamas. While this region of the Middle East is not a large supplier of oil, an escalation to a larger conflict involving countries like Iran, Egypt, and Syria has the potential to disrupt key trading routes such as the strait of Hormuz. Natural gas prices fell slightly as worldwide production hit an all-time high and weather throughout October was milder than expected. Both gold and silver continued to follow the upward trend that began following Hamas’ attack in southern Israel.

Interesting Articles

Market Update: October 9 - 13, 2023

Weekly Summary

Several key measures of inflation released last week at close to expected levels, leading to strong performance in both the equity and fixed income markets. A shifted tone in messaging by the Federal Reserve has increased expectations that peak interest rates have already been reached and caused long term Treasury rates to drop for the first time in several weeks. The tightening of sanctions on Russian oil exports along with concerns over geopolitical stability in the Middle East caused oil prices to rise slightly in the second half of last week after falling from the high reached in late September. The same geopolitical tensions caused a flight to safety among some investors and led to a strong performance by precious metals last week.

Economic Data

On Wednesday the Producer Price Index measure of US inflation released at 2.2% year over year, above the consensus estimate of 1.6% but only slightly higher than last month’s reading of 2.0%. The following day the Consumer Price Index measure of inflation released at 3.7% year over year, matching last month’s reading and again only slightly higher than the consensus estimate. Core CPI inflation, which excludes more volatile food and energy prices, released at the expected 4.1% year over year and fell slightly from last month’s reading of 4.3%. The largest contributor to consumer inflation was the rising cost of shelter, which accounted for over half of the increase in prices this month. Rising oil prices were also a major contributor in September though we can expect to see a much smaller impact in next month’s readings as oil prices have fallen after reaching a one year high at the end of September. Inflation measures for the UK, Euro Area, Canada, Australia, and Japan will be releasing later this week.

Equities

Equity markets performed fairly well last week with the S&P 500 now up over 0.9% from its open last Monday and the NASDAQ-100 up almost 0.8% over the same period. Several Federal Reserve officials spoke publicly last week and there appears to be a slow shift in tone regarding the central bank’s messaging. Discussion among Fed members seems to be transitioning away from whether further rate hikes will be needed and towards how long restrictive rates will need to be maintained next year. Companies with high exposure to the defense contracting industry performed especially well early last week out of fear that tensions between Israel and Hamas may continue to increase.

Fixed Income

Long term rates fell last week after several weeks of rate increases beginning at the end of August. Mild inflation releases continue to increase expectations that peak short-term interest rates have already been reached, or will be reached no later than January of next year. Markets are currently only predicting a 7.3% chance of a rate increase at the Federal Reserve’s November 1^st meeting, down from 19.6% last week and 27.2% the week before. The next major events to affect fixed income markets will be the European Central Bank’s interest rate decision on Thursday, October 26^th and the Personal Consumption Expenditure measure of US inflation releasing the following day.

Commodities

Oil prices were mostly flat early last week trading in the $83-$85 per barrel range after falling from a one year high of over $94 earlier this month. Prices rose slightly on Friday after the United States tightened G7 sanctions on Russian oil sold through Turkey and the United Arab Emirates. The ongoing conflict between Israel and Hamas has yet to have any significant effect on energy prices as Israel is not a major oil producer, but there is concern that potential involvement by Iran or Saudi Arabia could eventually have an impact on global crude supply. Natural gas continues to slowly rise as the winter approaches and colder weather begins to set in. Gold performed extremely well last week and is currently up over 4.1% from last Monday following the escalation in conflict between Hamas and Israeli troops. Silver followed a similar pattern and is up over 4.4% over the same period.

Interesting Articles

Market Update: October 2 - 6, 2023

Weekly Summary

Last week the Institute for Supply Management released their Report on Business which showed that the US service economy is expanding while the manufacturing economy is retracting slightly. US and Canadian unemployment data showed the amount of new jobs added was much higher than expected in both countries. This week the CPI and PPI measures of inflation are set to release which will likely have a large impact on the November 1^st Fed meeting. Energy prices may be more volatile than normal due to the possibility of countries passing sanctions on Iran for assisting in Hamas’ recent attack on Israel.

Economic Data

The Institute for Supply Management released their September Report on Business, containing the Purchasing Manager’s Index for both manufacturing and services. Manufacturing released at 49, slightly above the forecast of 47.8, while services released at the forecast of 53.6. A PMI reading of above 50 indicates that the sector of the economy is expanding overall, while a reading below 50 shows a contraction. On Friday employment change and unemployment rates for both the US and Canada were released. The US added 336k new jobs in September, over twice as many as expected, while Canada added 63.8k jobs, over three times as many as expected. Canadian unemployment was slightly below the expected 5.6% at 5.5%, while the US was slightly higher than the expected 3.7% at 3.8%. This Wednesday the Producer Price Index measure of inflation is set to release with the Consumer Price Index measure set to release the following day.

Equities

Equity markets started the week slow with the S&P-500 down 1.4% on mid-day Wednesday. The release of a strong ISM Services PMI appeared to reverse the trend and the S&P-500 is now up 0.5% from last Monday’s closing price. The tech heavy NASDAQ-100 performed well over the same period and finished the week up 1.6%, while the manufacturing heavy Dow Jones Industrial Average was up only 0.2%. Overall, more risky stocks such as tech and mid-caps performed well following Friday’s employment release while small-caps and value stocks struggled to keep up.

Fixed Income

The yield curve rose across the board last week though the changes were significant at the long end of the curve. Rates one year or shorter continue to fluctuate in the 5.4-5.7% range while the 30 year is now almost above 5.0%. The probability of a rate increase at the November 1^st Federal Reserve meeting increased from 14.3% to 27.2% following the strong jobs report on Friday, but has now fallen back down to 19.6% as of Monday. This week the fixed income markets will be most concerned with the inflation data releasing Wednesday and Thursday which are likely to have a large impact on whether the Federal Reserve decides to hold rates steady or hike one more time before the end of the year.

Commodities

Oil prices fell slightly last week before opening several dollars up this Monday following the invasion of Israel. Natural Gas also rose in price as colder weather approaches and is now over $3.00. Gold was flat for most of the week before rising over a full percent this Monday alone. Silver also performed well last week gaining 4.0%.

Interesting Articles

Market Update: September 25 - 29, 2023

Weekly Summary

Inflation in Germany, France, and the general Eurozone all released at below expectations last week, which is good news for the continent’s central bank. Congress was able to pass a last-minute spending bill over the weekend, avoiding a government shutdown but still has only until November 17^th to pass a budget and avoid another potential shutdown. The US PCE measure of inflation and the final Q2 GDP reading both released at expected levels, making the Federal Reserve’s rate decision at the end of the month more complicated. Interest rates continued to rise and oil is now at its highest price in nearly a year, while natural gas is at its highest price since March.

Economic Data

German inflation data released on Saturday at 4.5%, slightly below expectations of 4.6% and was good news for the economic center of the European Union. The rise in German unemployment also came in at only 10,000 citizens versus the expected 15,000. US Q2 GDP released the same day and grew at the forecasted 2.1% in the second quarter. Both the French and Eurozone in general had inflation come in slightly below expectations at 4.8% and 4.9%. The US Personal Consumption Expenditures measure of inflation released on Friday at the expected 3.5%, while core CPE excluding food and energy was at the expected 3.9%.

Equities

The equity markets started the week down with the S&P 500 losing 1.5%. The market rallied on Thursday after the release of US GDP figures but reversed some of these gains on Friday, ending the week down 1.1%. The NASDAQ-100 was mostly flat ending the week down 0.4% but has since recovered and is up slightly under 0.1%. Despite the strong GDP and inflation readings September was the S&P’s worst month this year, even with the Federal Reserve’s decision to not raise interest rates. However, the S&P is still up 11.6% since January and is slowly approaching the all-time high reached at the end of 2021. The potential government shutdown was unlikely to have a large effect on equity markets but could have delayed the release of economic data closely watched by the Federal Reserve such as the unemployment release this Friday. Congress now has until November 17 to pass another bill to avoid a shutdown.

Fixed Income

The long end of the yield curve rose again last week as the ten-year reached a rate of 4.6% while the 30-year passed 4.7%. Predictions of a rate increase at the November meeting rose from 18.4% to 30.9% after the release of US GDP growth on Thursday. The probability of another hike still peaks at the January meeting at 46.2% and cuts are currently not expected until at least July. As rates continue to rise Treasuries are now on track to post their third annual loss in a row for the first time in US history. The unemployment rate releasing this Friday is likely to have a large impact on November’s Fed meeting and the Fed’s action throughout the rest of the fourth quarter.

Commodities

For the second week in a row oil rose to above $93, prices previously not reached since last November. As of Monday, oil has fallen to below $89 a barrel. The price of natural gas also rose sharply from $2.64 to nearly $2.93 with forecasts of cooler months coming up which would increase demand for heating. Gold fell over 3.6% last week after the release of mild PCE inflation and strong manufacturing data released from the Purchasing Manager’s Index. Silver was also hit hard, losing over 5.8% in the last week alone.

Interesting Articles

All data and figures in this article were collected from YCharts, Inc. on 10/2/2023 by Zach Hill of Blue Ridge Wealth Planners unless otherwise cited.

This report was prepared by Blue Ridge Wealth Planners, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training.

All information is strictly as of the date indicated and does not reflect positioning or characteristics averaged over any period. All information referenced is for strictly information purposes only, and this piece should not be construed as a recommendation to purchase or sell the security referenced. Investing in any security, including the securities presented in this presentation, involves the potential loss of principal, and past performance it not necessarily indicative of future results.

Market Update: September 18 - 22, 2023

Weekly Summary

The Federal Reserve met this week and announced a decision to keep rates steady as expected. However, their insistence on keeping another rate hike on the table as well as signals of a plan to keep rates high for longer caused equity markets to slide. Inflation throughout Europe finally appears to be beginning to moderate and oil prices seem to finally be stabilizing around $90 a barrel, giving some relief to consumers after a steady rise in prices over the past month. Heading into this week markets will be watching for the release of the US Personal Consumption Expenditures measure of inflation this Friday and to see if Congress is able to pass a new spending bill by Saturday to avoid a government shutdown.

Economic Data

Several inflation measures for foreign countries released last week. On Tuesday, Euro Area core inflation released at the expected 5.3% annually, while Canadian headline inflation was slightly above the expected 3.8% at 4.0%. In more positive news core inflation in the UK was significantly below expectations at 6.2% versus a forecasted 6.8%. Headline UK inflation also released at 6.7%, below the expected 7%. This week we will receive more inflation data from Germany and France, as well as the PCE measure of US inflation. We will also learn the final US GDP growth rate for this year’s second quarter which will shed further insight into the state of the economy.

Equities

The equity markets reacted negatively to the Federal Reserve’s comments with the S&P 500 falling 2.9% on Wednesday and Thursday. The NASDAQ-100 fell an even further 3.2% over the same period with some investors transitioning from growth heavy tech companies into more stable value investments. Equity markets have seen little growth since July after a rally through the first half of this year. Though September has been a weak month for equity markets, indexes like the S&P 500 are still up over 13% since January.

Fixed Income

The long end of the yield curve moved up slightly last week and the curve continues to slowly inch out of its inverted state. The largest topic discussion this week was the Federal Reserve meeting that concluded Wednesday. As expected, Fed officials decided to keep interest rates steady at this meeting but maintained the position that further hikes may still be coming this year. They also pushed back expectations of eventual cuts until June 2024, signaling they are willing to keep rates high for longer than previously expected. The Bank of England also decided to keep rates steady, a move that was less expected as the UK and the rest of Europe continue to struggle with higher inflation than the US.

Commodities

Oil prices reached their highest point so far this year on Monday surpassing $95 a barrel at one point. However, prices dropped slightly throughout the rest of the week and now appear to be stabilizing around $90 a barrel. Natural gas prices continue to hover in the $2.50 to $2.70 range but can be expected to slowly increase as temperatures begin to moderate and demand rises. Gold rose following the Fed’s re-stated commitment to keep rates higher for longer, but by Friday afternoon was trading back at the previous week’s levels. The price of silver fell slightly throughout the week but is still up over 1% for the month.

Interesting Articles

All data and figures in this article were collected from YCharts, Inc. on 09/25/2023 by Zach Hill of Blue Ridge Wealth Planners unless otherwise cited.

This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.

Investments in emerging markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.

An index is an unmanaged portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock's weight in the index proportionate to its market value.

The Financial Times Stock Exchange 100 Index, also called the FTSE 100 Index, FTSE 100, FTSE, or, informally, the "Footsie" is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. It is seen as a gauge of prosperity for businesses regulated by UK company law.

The FTSE Developed Europe Index is an index of European stocks, part of the FTSE Global Equity Index Series. It is a subset of the FTSE Europe Index. The FTSE Eurobloc Index is a subset of it.

The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

The Bloomberg Barclays US Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the US bond market.

The US Dollar Index (USDX, DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of US trade partners' currencies.

The Consumer Price Index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies.

West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content.

The Producer Price Index (PPI) is a family of indexes that measures the average change over time in selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller.

This report was prepared by Blue Ridge Wealth Planners, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Blue Ridge Wealth Planners Form ADV Part 2A & 2B can be obtained by going to www.adviserinfo.sec.gov. and searching the firms name. Neither the information nor any opinion expressed it so be construed as solicitation to buy or sell a security of personalized investment, tax, or legal advice.

Market Update: September 11 - 15, 2023

Weekly Summary

There was little movement in either the equity or fixed income markets last week despite key inflation metrics releasing slightly higher than expected. However, much of the rise appears to be due to the rising price of oil as demand increases in China. The Federal Reserve is set to meet this week and will decide whether to increase interest rates. Markets currently do not expect rates to increase at this meeting, so discussion will likely center mostly on the economic outlook for the rest of the year.

Economic Data

Both the Consumer Price Index and Producer Price Index measures of inflation released this week. CPI was only slightly higher than expected at 3.07% annually versus 3.6%. However, core CPI, which excludes food and energy costs, released as expected at 4.3%. PPI was also slightly higher the expected at 1.6%. Core PPI released at the expected 2.1%, the lowest annual level since January 2021. Most of the increase in both measures of inflation was due to rising energy prices as oil continues to climb higher.

Equities

Markets reacted surprisingly well to slightly above inflation readings with the S&P 500 rising 0.39% on Thursday. However, all gains in the index were reversed on Friday with the index reverting to the previous week’s levels. The S&P 500 is still up over 2% in the last month and over 16.5% since the start of the year. Chipmaker Arm Holdings had an initial public offering and surpassed price expectations over excitement about the company’s participation in the booming AI industry. Private equity company Blackstone as well as Airbnb joined the S&P 500 on Monday.

Fixed Income

US Treasury rates were again largely unchanged last week although long term rates did rise very slightly. The Federal Reserve is set to meet this week and futures markets are predicting only a 1% probability of a rate increase, down from 3% last week. Market consensus appears to be that peak interest rates have already been reached, though there’s still about a 40% probability of one more increase by December. The European Central Bank raised interest rate targets by 0.25% to 4.5% in an effort to fight ongoing inflation in the Eurozone.

Commodities

Increased Chinese demand along with export restrictions by OPEC have continued to put upward pressure on the price of oil. WTI crude oil futures prices have risen to over $90 dollars a barrel for the first time since November 2022. Natural gas prices have hovered around $2.50 for the past several months and are not expected to increase until the winter season. The price of gold and silver rose slightly after a gradual decline that began at the end of August.

Interesting Articles

All data and figures in this article were collected from YCharts, Inc. on 09/18/2023 by Zach Hill of Blue Ridge Wealth Planners unless otherwise cited.