Major market indexes ended lower for the third straight week as the 10-year Treasury yield remained near a 16-year high. Investors believe the Fed will maintain a hawkish stance even with declining inflation. The S&P 500 was down 2.11% last week and is down 4.06% in the past month as the market has had trouble with mixed corporate earnings and higher yields. Energy and Healthcare, however, are in the green and are two sectors we have liked and continue to allocate funds into. We did get good news on retail earnings and a strong consumer, but the good reports were followed immediately by a cloudy outlook due to rising rates. The bottom line is that we will continue to see a choppy market until yields stabilize and we get better clarity from the Federal Reserve. Another headwind that the market is facing is seasonality. Going back to 1950, August and September have historically been two of the most challenging for the markets. Research shows that the average return for August has been flat, and the average return for September has been down 0.7%. So, higher yields and seasonality can be blamed for the market choppiness.
We often hear people asking about the Fed being stubborn when it comes to leaving rates elevated. In September, the Fed is expected to make another rate decision, and right now, the expectation is that they will pause. We don’t anticipate a cut in the foreseeable future. This has many people wondering when the Fed will start cutting rates. With the consumer data that we just got, along with wage growth, the job market, the housing market, etc., there are still many elements out there that the Fed is looking at that is causing them to be hesitant to cut rates. The retail sales report is one consumer data point they are keeping an eye on, showing a solid 0.7% increase for the month. The Amazon Prime Day we had back in July boosted a portion of that. On top of that, the job market and the housing market are also reports that the Fed watches. The Fed is continuing to keep an eye on inflation because historical data shows that it comes in waves. Usually, inflation doesn’t come down and stays down. We’ve come from 9% to 3%, but that doesn’t usually mean we see the end of inflation. Historically, there’s only been a 13% occurrence there that has happened. So, the Fed is looking at all these numbers, factoring in the reality that we may have another wave of inflation to hit us before it’s over. On average, the second wave started around 30 months after the first peak. This explains why the Fed is being stubborn when it comes to cutting rates and watching inflation.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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