|EQUITIES MIXED AGAIN THIS WEEK AS GEOPOLITICAL WORRIES TAKE CENTER STAGE AND AS EARNINGS SEASON KICKS-OFF
Weekly Market Update — October 14, 2023
|Weekly Market Performance
*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.
Stocks and Equities Mixed as Earnings Season Gets Underway
The major U.S. equity indices turned in a mixed week, as conflict in Israel garnered most of Wall Street’s collective worries. Without question, the major news of the week was clearly the widening war in the Middle East and not unexpectedly, Defense stocks and Energy stocks jumped while airline stocks declined.
It was also the beginning of earnings season and the big banks (Citigroup, Wells Fargo and JPMorgan Chase) all beat expectations. Accordingly, the large-cap value stocks outperformed the large-cap growth names on the week.
Outside of that conflict, inflation was on everyone’s mind, especially with respect to the release of the minutes from the most recent Federal Reserve meeting. But the Fed’s meeting minutes were measured – neither dovish or hawkish.
The release of the minutes from the Federal Reserve’s September policy meeting didn’t really forecast future rate direction, although the language that read “all agreed that rates should stay restrictive for some time,” and the “Fed should shift communications from how high to raise rates to how long to hold rates” gave hope that maybe the Fed will hold rates at its next meeting.
There was a lot of economic data for Wall Street to digest this week, including that:
Inflation Rises in September
The U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4% in September on a seasonally adjusted basis, after increasing 0.6% in August. Over the last 12 months, the all items index increased 3.7% before seasonal adjustment.
“The index for shelter was the largest contributor to the monthly all items increase, accounting for over half of the increase. An increase in the gasoline index was also a major contributor to the all items monthly rise. While the major energy component indexes were mixed in September, the energy index rose 1.5% over the month. The food index increased 0.2% in September, as it did in the previous two months. The index for food at home increased 0.1% over the month while the index for food away from home rose 0.4%.
The index for all items less food and energy rose 0.3% in September, the same increase as in August. Indexes which increased in September include rent, owners’ equivalent rent, lodging away from home, motor vehicle insurance, recreation, personal care, and new vehicles. The indexes for used cars and trucks and for apparel were among those that decreased over the month.
The all items index increased 3.7% for the 12 months ending September, the same increase as the 12 months ending in August. The all items less food and energy index rose 4.1% over the last 12 months. The energy index decreased 0.5% for the 12 months ending September, and the food index increased 3.7% over the last year. ”
Small Businesses Again Not Feeling Optimistic As Inflation is #1 Issue
The National Federation of Independent Business released the following on October 10th:
The NFIB Small Business Optimism Index decreased half of a point in September to 90.8. September’s reading marks the 21st consecutive month below the 49-year average of 98. Twenty-three percent of owners reported that inflation was their single most important problem in operating their business, unchanged from last month and tied with labor quality as the top concern.”
Key findings include:
Open Jobs Still an Issue
As reported in NFIB’s monthly jobs report, “43% (seasonally adjusted) of all small business owners reported job openings they could not fill in the current period, up three points from August. Owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 18% planning to create new jobs in the next three months.
Fifty-seven percent of owners reported capital outlays in the last six months. Of those making expenditures, 41% reported spending on new equipment, 22% acquired vehicles, and 17% improved or expanded facilities. Twelve percent of owners spent money on new fixtures and furniture and 7% acquired new buildings or land for expansion. Twenty-four percent of owners plan capital outlays in the next few months.”
Fed Meeting Minutes Released
Wall Street agonized over the release of minutes from the U.S. Federal Reserve’s last meeting in September. Fed officials mentioned uncertainties around the economy, oil prices and financial markets as supporting “the case for proceeding carefully.
“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.”
Further, the Fed said:
“In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time. A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted. All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks.”
Market Predicting No Rate Hike in November
The likelihood that the Fed will change the Federal target rate at its upcoming November FOMC meetings, according to interest rate traders is low, as over 92% believe the Fed will keep rates the same:
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