The Weekly Grind: October 2, 2023

Week in Review

The NASDAQ Composite managed to close higher last week, ending its lowing streak at 3. The Dow Jones Industrial Average wasn’t quite so lucky. It dropped 1.3%, bringing its year-to-date gain to just 1.1%. The US Dollar Index rose for the 11th straight week, only the second time in the index’s history that we’ve seen that feat. Next week, we’ll try to match the record set back in 2014. Interest rates continued to rise as well, with 5, 10, and 30-year Treasury yields all reaching their highest levels in more than a decade. Gold dropped 4% – it’s worst weekly performance in more than 2 years – and oil prices continued to drift higher.

Stocks lived up to (or in this case, down to) their seasonal reputation in September. Over the last 70 years, September has been the worst month for the S&P 500 index, resulting in an average decline of 0.6%. This year, the index fell 4.9% for the month. Ready for the good news? The fourth quarter is is typically the best of the year. Since 1950, stocks have risen 4.2% on average in Q4.

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(Premium) Communication Services Sector Deep Dive – September

Sitting atop the sector leaderboard in 2023 is Communication Services. Just like most of the equity market during September, Communication stocks have faltered. But they’ve dropped somewhat less than most of the market over that period, putting their year-to-date gain at 36.9%. That’s more than triple the benchmark’s 11.8% rise for the year.

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Wake Me Up When September Ends

I don’t know which direction stocks are headed next. No one does for sure. But whether your portfolio is positioned for equities to rocket higher or prepared for impending doom, it’s always important to understand both the bull and bear cases. By understanding where the risks to your thesis are, you’re more likely to know when your thesis could be wrong, and how to take corrective action.

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The Weekly Grind: September 25, 2023

Make it 10

That’s 10 straight weeks of gains for the US Dollar Index. In the more than 40 years since the inception of the index, a streak of that length has only happened one other time: 2014. Back then, the Federal Reserve was still more than a year away from raising interest rates off the zero lower bound. This time, they’re nearing the end of one of the fastest tightening cycles in decades. Much like what we saw in 2022, stock prices have reacted poorly to the Dollar’s rally. Last week, the growth-oriented NASDAQ Composite led stocks lower with a 3.6% decline. The Dow Jones Industrial Average was moderately better, falling less than 2%. Meanwhile, 10-year Treasury rates rose to their highest level in more than 15 years.

The Federal Reserve surprised almost no one when they decided to keep their short-term interest rate unchanged at last week’s FOMC meeting. The Committee’s Summary of Economic Projections, though, where members detail their estimates for future economic data and policy actions, showed that officials are reticent to prematurely declare victory. Better-than-expected growth this year has the Fed looking at higher-than-expected rates in 2024 and 2025. In June, the FOMC had projected 100 basis points of rate cuts next year. In the September SEP, they cut that number in half.

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(Premium) FICC in Focus – September

What do we want to own?

That’s the question we ask ourselves every day. Stocks? Bonds? Commodities? Crypto? Cash? The answer doesn’t have to be like flipping a light switch. It’s not like we want to be all in on stocks on Monday, then all in on Treasurys by Tuesday afternoon. Instead, the answer to “What do we want to own?” evolves slowly over time. Our minds gradually change as new evidence comes in, and our decisions follow those slowly-formed opinions.

Stocks have been the place to be since last fall. There’s not much argument about that. In recent weeks, though, the tide seems to have turned in favor of other asset classes. Commodities are leading the way. Check out the ratio of the Invesco DB Commodity Fund (DBC) vs. the S&P 500 below. We’ve broken the downtrend line, momentum just reached overbought territory for the first time all year, and the ratio crossed above the 200-day moving average. It’s a bit early to definitively call this the start of a new uptrend, but at the very least, this year-long downtrend has weakened considerably.

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Mid-Month Macro Update

Slowing Progress on Inflation

Someday, perhaps, we’ll get to stop talking about inflation. As long as prices remain the most important variable in the economic outlook, though, we’ll keep providing updates for our readers.

Last week, we received a fresh batch of inflation data with the August CPI and PPI reports. The Consumer Price Index revealed positive news for economic observers. Core inflation fell for the fifth straight month, and on a 3-month annualized basis, dropped to the lowest level since March 2021.

However, that good news came with a caveat. ‘Core’ measures of inflation strip out the price of food and energy – and energy prices are reaccelerating.

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