Week in Review: September 29, 2023

September 29, 2023

Recap & Commentary

Markets ended the week lower, capping a disappointing month and reinforcing the fact that September is the worst calendar month of the year for the S&P 500.  Since 1928, the venerable index has incurred an average September loss of 1.2%, followed by February with an average loss of just 0.13%.

Higher interest rates, particularly at the longer end of the Treasury curve were the primary headwind, with the 10-Year and 30-Year Treasury yields reaching their highest levels since 2007 and 2011, respectively. Higher rates of late have stemmed from a confluence of factors including concerns over the government’s ballooning debt levels, expectations regarding the Fed’s “higher for longer” approach to interest rates, improved US economic outlook, and concerns about inflation becoming entrenched at levels above the Fed’s current 2% target.

Somewhat unexpectedly, the US government avoided a shutdown following the 11th hour passage of a funding bill by the House of Representatives. For most of the week, such an outcome seemed unlikely with the House unable to agree on even on a stop-gap funding bill. However, late Saturday afternoon the House agreed to a continuing resolution to fund the government for 45 days providing both chambers of Congress the necessary time to draft a longer-term funding bill. Since 1977, Congress has only passed an annual budget on time on three occasions.  During the same period, continuing resolutions have been used 200 times to fund the government for varying periods of time.

Economic Commentary

A busy economic calendar was highlighted by core personal consumption expenditures (PCE) inflation, the Fed’s preferred inflation measure. For the month of September, core PCE rose just 0.1%, slightly less than the 0.2% consensus estimate. Compared to a year ago core PCE slowed to 3.9%, its slowest pace since September 2021 and down from 4.3% recorded in August.   While the decline is likely to be welcomed by the Fed, it is unlikely to change the Fed’s approach to monetary policy as it attempts to return inflation to 2%.

After a strong start to the year, new home sales fell nearly 9% in August, to their lowest level since March.  Pending home sales fared no better, falling 7%.  Both were impacted by higher mortgage rates which, according to Freddie Mac, hit a new 23-year high of 7.31% during the past week.

Orders for durable goods (items designed to last 3+ years) were effectively flat in September after declining over 5% in August. A more refined measure of business spending showed orders grew 0.9%, their fastest pace since January,

Consumer confidence rose slightly, aided by a small improvement in how consumers view the current state of the economy. More interestingly, consumers’ 1- and 5-year inflation expectations fell 0.3% and 0.2%, respectively, to 3.5% and 3.0%.  Both expectations were 0.1% higher than expected, another reminder of the Fed’s need to remain vigilant in its fight against inflation.

Of Note

Student loan payments will resume in October for millions of borrows after being suspended since March 2020. According to the Department of Education, nearly 44 million borrowers owe a combined $1.6T. With savings rates already back below pre-COVID levels, inflation still elevated, and consumer credit card debt recently eclipsing $1T for the first time on record, many borrowers will face difficult choices in order to make their monthly student loan payments.

Market Indices   (As of 09/29/2023)

• Sept. Employment Report
• ISM Manufacturing
• ISM Services
• Consumer Credit
• Imports & Exports
• Weekly Jobless Claims