Weekly Market Update for October 13, 2023

It is worth noting this week’s comments by Jamie Dimon, the CEO of JPMorgan, the largest bank in the country. Dimon cautions, “This may be the most dangerous time the world has seen in decades.” He goes on to cite the war in Ukraine, the unprecedented attack on Israel by Hamas, which he feels may have “far reaching impacts on energy and food markets, global trade, and geopolitical relationships.” He also noted extremely high US government debt and the uncertain results from the Fed’s swift increase in interest rates. Ironically, Dimon announced very strong earnings for Q3 at JPMorgan this morning.

How concerned should we be? If Iran attacks Israel, global instability will ensue. Unfortunately, the US is not well positioned for such an event. Weapons stockpiles have been reduced to help Ukraine. The Strategic Petroleum Reserve has been drawn down to a low level by non-strategic actions. The US already is running a large budget deficit which leaves little room for crisis spending.

Many sectors of the domestic economy will be hurt if either the Russian-Ukraine or the Israel-Hamas conflicts widen. Travel, lodging, airlines, and trade will see direct negative impacts. Emerging-market stocks are already at the lowest in decades and likely to go lower (we have no exposure). Crude oil, natural gas, and defense contractors will benefit. If these conflicts widen, it is likely to be known relatively soon. Market volatility may spike in the interim.

Domestic economic news was mixed this week. A decline in consumer confidence was reported, which often indicates a future slowing in consumer spending. The CPI report showed continued downward trends in inflation, especially in the index that excludes the volatile components of food and energy. The Fed’s next meeting is 10/31 and 11/1. No change in rates is expected following the remarks of several Fed Governors this week. Many economists feel the Fed has finished raising interest rates, pausing to assess the impact. We agree. Locally, Hormel settled its pending strike. Unfortunately, the UAW and the auto companies seem far from doing so with 34,000 now on the picket lines.

For the week, the S&P 500 was up +0.45% and the NASDAQ -0.18%. On Monday the S&P 500 was +0.63%, Tuesday +0.52%, Wednesday +0.43%, Thursday -0.62%, and Friday -0.50%. The yield on the 6-month Treasury closed at 5.55%. The 10Yr Treasury was down -17bps to 4.62%.

Next week, the fear of an expanded conflict will dominate headlines and influence the market. Q3 corporate earnings will also have a market impact. Regional bank earnings will show how successfully these institutions have navigated higher interest rates. Positive bank earnings should boost our fixed income strategies which now yield from 7.5%-8%.