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Read the Summer 2023 WAA for our Market Quicktakes, Review and Outlook, and Much More

September 2023

Challenging August ends 5-month
winning streak for stocks

Following up on a very strong month of gains can be challenging for markets to continue the momentum, especially after an extended winning streak that included the best first half for Nasdaq since 1983. August clearly absorbed those challenges and stocks fell across the board, consolidating five straight month of gains.

August started with credit rating agency Fitch downgrading the US long-term Treasury debt rating one notch, from AAA to AA+, which unnerved markets. Fitch noted growing debt and “erosion of governance” stemming from ongoing debt ceiling political brinksmanship. It was the second downgrade in our nation’s history, with the first in 2011.

Small-caps and mid-caps, which led in July, led on the downside in August with the Russell 2000 falling 5.2% and the S&P 400 sliding 3%. The S&P 500 dipped 1.8%, while YTD leading and tech-heavy Nasdaq lost 2.2%; the August slide ended a 5-month winning streak for each. The Dow dipped 2.4% in the difficult month; however, the major US indexes remained solidly in positive territory ending August, led by Nasdaq up 34.1%, and the benchmark S&P 500 up 17.4%.

August was a bit rougher overseas, as developed market stocks fell 4.1%, as measured by the benchmark MSCI EAFE, while emerging markets sank 6.4% on weak China economic news. It was China’s fifth straight month of economic contraction; China is the second-largest economy in the world and its woes contributed to global stock weakness in August, including the US.  

Though expected to slow going forward, resilient economic data have raised expectations the US may avoid a recession altogether, but also that the Fed may need to raise interest rates further and/or keep them higher for longer to continue lowering inflation to its 2% target. A soft-landing to mild recession remains the baseline forecast. The unemployment rate in July dipped 0.1% to 3.5%, and remained near 50-year lows, as job growth moderated.

Interest rates rose across the yield curve in August; the benchmark 10-year Treasury Note yield rose 0.12% to 4.09% but off its high yield for the year at 4.34% on August 22, and the Bloomberg US Aggregate Bond Index fell 0.7%  to finish up 1.4% YTD.

Fed Chair Powell’s comments at the annual Jackson Hole conference didn’t disrupt the markets like last year’s “some pain” speech, which was a relief to everyone. He noted there are risks on both sides of doing too much and too little regarding future interest rate hikes. While the market expects a pause at the September 19-20 FOMC meeting, expectations rose to coin-toss for November following Powell’s comments that the Fed is prepared to raise rates further.   

September Update

Volatility has continued in September and interest rates have risen further. The 10-year Treasury Note yield closed mid-month at 4.33%, just off its high yield for the year. While the unemployment rate rose 0.3% in August to 3.8%, higher than expectations, it has remained below 4% since February 2022 and the jobs market remains robust.  Headline CPI inflation rose to 3.7% year-over-year, suggesting the Fed has further work to do or hold rates higher for longer to continue its inflation fight.

As noted last month, some market turbulence was expected given the strong gains for stocks ending July. Pullbacks and consolidations are common in any year, especially after outsized gains. The market environment for 2023 has been positive overall and encouraging but remains challenging given the Fed uncertainty. We remain cautiously optimistic given we are closer to the end of the Fed’s aggressive rate hike cycle.

As we wrap up the Third Quarter in September, we continue to encourage investors:

  • Remain well-diversified
  • Maintain discipline and patience
  • Focus on the long-term
  • Review your Risk Tolerance

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio.   

~Your Nelson Securities Team    

*Past Performance is No Guarantee for Future Results