Your Monthly Market Newsletter, October 2023

After a dismal September, worries about the potential for another U.S. government shutdown felt like one more straw on the camel’s back (Congress narrowly averted the shutdown when, on September 30, they approved the stopgap plan to remain open until mid-November). Concerns about the shutdown left markets in turmoil, with the Dow Jones, Nasdaq, and S&P 500 all finishing lower for the month.

Despite concerns of a potential recession, September ended with the S&P up 13.3% year-to-date, and investors remained optimistic that markets could overcome the annual pattern of lackluster equity performance during September. However, economists feel we will likely face headwinds in October, which aligns with the tradition of October being a month of higher-than-normal market volatility.

The “October effect” is a phenomenon where investors expect stocks to nosedive at some point during the month. The historic crashes of 1929 and 1987 both occurred in October, so many investors dread this time of the year. Conversely, stocks tend to perform better in October, with the S&P 500 posting gains 65% of the time from 2003 through 2022. And, even quirkier still, “When markets are up double digits entering August, and then fall during the August to September period, the fourth quarter tends to be very strong,” according to Ross Mayfield, investment strategy analyst at Baird.* The S&P 500 was up nearly 20%, but then fell during August and September. So, there’s always hope for a strong fourth quarter if tradition holds true.

Gasoline prices edged lower at the end of September. As of 9/25, the average retail price was $3.837 per gallon, down $.041 from the prior week’s price but up $.126 from a year ago. For regional comparison purposes, as of September 25, the average East Coast gas price was $3.598 per gallon; the Midwest price was $3.639/gallon; the Gulf Coast price was $3.351/gallon; the Rocky Mountain price was $3.996/gallon; and the West Coast price was $5.258/gallon.

For the first time since 2010, auto loan debt has outpaced student loan debt, according to the Federal Reserve Bank of New York. This is likely due to the pause in loan accrual during the pandemic, as well as the blistering rate of vehicle price increases over the past couple of years. As federal student loan payments resume this month and interest rates remain high, many consumers may find it increasingly difficult to keep up with loan payments (which can damage credit scores).

October is "National Cyber Security Awareness Month." With incidents of identity theft and online fraud continuing to rise, this is a great reminder to be extra diligent with your online data:

• Make sure your passwords are strong and secure
• Back up data regularly
• Turn on two-factor authentication (especially for sensitive financial account sites)
• Keep your machine updated with the latest system software
• Think before you click (never click unknown links or especially those asking to change a password)
• Install and utilize security software

If you have questions or concerns about any of these steps, let us know. We’d be happy to provide additional information.

October is also "National Financial Planning Month," a topic near and dear to our hearts. Financial Planning focuses on the importance of having a written plan designed to help you achieve short- and long-term goals. If you’re considering changes to beneficiaries, have questions about investment choices, or want to adjust your plan to accommodate changes in your life, we’re here to help make sure your plan aligns with your goals. As Benjamin Franklin once said, “If you fail to plan, you are planning to fail.” Just give us a call to schedule some time to talk – we look forward to hearing from you. 

^{* The October Stock Market Stands out for High Volatility – and Above-Average Returns, 9/29/23}

Stocks

September has a strong connotation to the word “fall,” not only because it marks the official end of summer but also because September has historically been the worst month for equity markets. This September was true to form, with all three major U.S. equity indices (the S&P 500, the Dow Jones, and the NASDAQ) trading down over three percent. The downward move in U.S. equities came from a rise in bond yields as interest rates continued to grind higher. In addition, a rise in oil prices has investors worried that inflation may not be fully under control yet. The amount of pandemic-era savings still left in consumer tanks is also a big question as we enter the holiday season (a quarter usually flush with spending opportunities that can bolster corporate margins and profits). Although up over 20% at one point this year, the S&P 500 is now only up 13.07% on the year.

Sector Performance

The only sector that returned a positive number in September was Energy. The energy sector was driven by rising oil prices, with the global benchmark Brent crude climbing 9.7% for the month to $95.31 per barrel. Healthcare and Financials rounded out the podium of the top three performing sectors for the month. All three sectors faced headwinds coming into the month, as this year had previously been dominated by large tech names. Many of those same tech names retreated in September from their summer highs. The Technology sector as a whole was down -6.88% in September. The Bloomberg Magnificent 7 Index (Ticker: BM7T), representing the seven large tech names that have driven returns for much of the year, was down -5.63% in the month that welcomed Fall.

Bonds

The Federal Reserve met in late September and decided to hold interest rates at the same level they’ve been since their July meeting. The next rate decision will come on November 1st, followed by another meeting in December. The “Dot-Plot,” which is a survey of interest rate projections by  Federal Reserve members, has the average interest rate ending 2023 at 5.625%, implying one more hike is likely before the year is done. Chairman Powell has taken a hawkish stance recently amid inflation that has risen for two consecutive months, partly due to rising energy costs. The continued “higher for longer” narrative (regarding the path of interest rates likely to remain at or above current levels through the first half of 2024), coupled with his hawkish stance, drove yields up in September. The two-year yield rose 18bps, and the ten-year yield rose 47bps. This caused bond prices to fall, with longer-term duration bonds falling the most. 

Economic Update

September was characterized by hotter-than-expected economic data. On the labor front, the economy added jobs for its 32^nd consecutive month, growing by 187,000 jobs. Additionally, the participation rate, which measures how many people are working out of the total population, also moved up to 62.8% from 62.6%. Also heating up was inflation, with headline inflation rising to 3.7%, although core inflation, which excludes food and energy, fell to 4.3%. Additionally, GDP for the second quarter rose to 2.1%. The overall environment is indicative of strong, resilient growth that bodes well for a potential soft landing.

Rewilding Project Turns Scientists,
Ranchers Into “Beaver Believers”

Once seen as a nuisance, ranchers in Idaho are now seeing the benefits of having beavers on their lands. The “beaver fever” has also caught the attention of a team of scientists from Boise State University and Utah State University who are studying how beavers can positively impact local ecosystems.

During the 19^th century, beavers all but vanished from the western United States thanks to the fur-trapping industry. Beaver fur was especially popular in men’s fashion, including hats, coats, and gloves. Landscape managers now understand that beaver damming is valuable to prairie ecosystems. Water from rain and snow melt typically flows down rivers and streams until they reach an ocean. By having beaver dams on riverways, the water can be contained in the area longer, which is good for the animals, plants, and amphibians living nearby. The lingering water also keeps the ecosystem drought resistant and replenishes aquafers.

With the help of data provided by NASA’s Earth-observing satellites, the scientists can identify which rivers and streams are most ideal to reintroduce beavers and monitor the ecosystems’ changes over time as water and plants return. Their goal is to bring the number of beaver dams back to pre-trapping levels. Read more about this project here. 

THOUGHT FOR THE MONTH

^{Index Definitions}

^{Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.}

^{Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.}

^{NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.} 

^{S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.}

^{S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.}

^{S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.}

^{S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.}

^{S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.}

^{S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.}

^{S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.}

^{S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.}

^{S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.}

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^{A portion of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.}

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