The Week In Review 10/2/2023

“The future ain’t what it used to be.” – Yogi Berra

Last week was kind of a see saw week in the markets... rebound attempts throughout the week left the Nasdaq and Russell 2000 with slim gains while the Dow Jones Industrial Average and S&P 500 declined 1.3% and 0.7%, respectively. September was not kind to investors.

The 10-yr note yield jumped 13 basis points last week, and 48 basis points this month, to 4.57%. The 2-yr note yield declined eight basis points this week, and rose 18 basis points this month, to 5.04%.

The concern for investors is not necessarily the size of the rate increases, but rather the pace at which rates are moving. In addition, the jump in rates more recently doesn't appear to be tied to a fear of more rate hikes by the Fed.

The fed funds futures market sees only a 14.2% probability of a 25-basis points rate hike at the November FOMC meeting, versus 27.5% a week ago and 62.3% a month ago, according to the CME FedWatch Tool.

That understanding may create some angst about what else is driving the Treasury market. Some other factors include: the Fed having a long way to go still with its QT efforts, other central banks possibly selling Treasuries in a bid to support their currencies, and concerns about the budget deficit issue. There is always something else to worry about.

In addition to the move in interest rates, seasonality was cited as another potential factor weighing over the market. September, historically, has been the worst month of the year for the S&P 500.

Market participants received some economic data this week, including a weaker than expected August new home sales report, a low level of weekly jobless claims, and some pleasing inflation data in the form of the core-PCE Price Index for August.

Inflation is clearly slowing… but WTI crude oil futures jumped more than $7.00/bbl this month, settling Friday's session at $90.78/bbl, which stoked lingering concerns about inflation expectations, rising gas prices, and a slowdown in consumer spending.

The rate-sensitive S&P 500 utilities sector saw the largest decline this week by a decent margin, falling 7.0%. The next worst performer was the consumer staples sector (-2.1%). Only the energy (+1.3%) and materials (+0.2%) sectors registered gains on the week.

Market Snapshot…

• Oil Prices – Oil prices went lower Friday but were up about 30% for the quarter. West Texas Intermediate crude (WTI) settled down 92 cents, or up about 1%, for the week to close at $90.97/barrel. Brent crude settled down 7 cents lower, but up about 2.2% for the week to trade at $95.31/barrel.
• Gold– Gold prices declined on expectations interest rates may stay higher for longer. Spot Gold fell 0.8% to $1,850.44 per ounce, while U.S. gold futures settled 0.7% lower to $1,866.10. Silver finished the week at $20.89.
• U.S. Dollar– The dollar backed off 10-month highs but was still headed for its biggest quarterly gain in a year. The dollar index fell 0.23% to 105.91, down from a 10-month high of 106.84. Euro/US$ exchange rate is now 1.053.
• U.S. Treasury Rates– The yield on the 10-year Treasury note fell after the Fed’s preferred inflation measure showed some signs of easing inflation. The yield was 4.583%, down from 4.688% on Thursday, its highest level since Oct. 15, 2007.
• Asian shares were mostly lower in overnight trading.
• European markets are trading lower.
• Domestic markets are also trading lower this morning.

This week begins the fourth quarter. Despite September’s slump, both the S&P and Nasdaq remain solidly up on the year. The Dow is lagging but slightly positive for the year.

Today starts the quarter off in stride. We'll get September’s Manufacturing PMI and hear from four members of the Fed. On Wednesday, we'll receive Non-Manufacturing PMI, and Thursday and Friday will feature a plethora of employment data including September’s nonfarm payrolls report.

Have a wonderful week!

The opinions expressed herein are those of Michael Hilger and not necessarily those of Raymond James & Associates, Inc., and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

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