Weekly Market Update for August 25, 2023

by Vinicius d’Avila, Research Associate

Markets this week were largely anticipating Federal Reserve Chairman Powell’s speech at the Jackson Hole symposium Friday. Powell reaffirmed the Fed’s position to bring down inflation on higher interest rates, conceding that the American economy may see below-trend economic growth and a softer labor market as a result.

This week saw some scrutiny of Consumer Spending resiliency, as reports by Macy’s and Dick’s Sporting Goods maintained a more cautious outlook. Consumer spending represents around 70% of all economic activity in the U.S. Interest payments are taking up a larger chunk of the household budget, a trend that should continue as student loan repayments resume in October. Mortgage rates hit 7.23% this week, the highest since 2001, and home purchase applications are at the lowest levels in 28 years. As usual, we keep an eye out for interest rate projections and expectations, especially for their dynamics with securities pricing. Bond pricing dynamics support price appreciation of bonds and preferred stocks as treasury yields come down, and we expect Federal Reserve interest rate cuts to occur sometime in the next 12 months.

Though the U.S. economy and labor market have shown some resiliency during the rate-hiking cycle, the U.S. Labor Department reported on Wednesday that the American economy may have added fewer jobs than previously indicated. More specifically, the Labor Department says there were around 306,000 fewer jobs created in the year through March 2023. The revision (of around 0.2% of total employment) is part of the annual benchmarking process, when the Department revises data from its monthly reports – which are more timely, but less accurate. The revision is in line with historical results, and helps bring a clearer picture of the American job market, which might be just a couple of degrees cooler than previously believed. Still, the labor market had 2.8 million more jobs in March 2023 than prior to the Covid pandemic, with another estimated 870,000 jobs added in the months since.

Chipmaker NVIDIA reported impressive growth in the last quarter, helping to carry markets to a slight weekly gain. The S&P 500 rose by +0.82%, with the Nasdaq doing a bit better at +2.26%. The 10-year Treasury rate decreased a mere .01% to 4.24%, with the 6-month Treasury at 5.57%. Looking ahead, next week will be quite data-heavy, with readings on Consumer Confidence and Job Openings on Tuesday, the Personal Consumption Expenditures Price Index on Thursday, and finishing with the Jobs Report on Friday.

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