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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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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The Weekly Grind: September 18, 2023

The US Dollar index has risen for 9 weeks in a row. That’s only happened two other times: 2014 and 1997. Crude oil, meanwhile, has risen 10 of the last 12 weeks, and so has the price of 10-Year Treasury futures. Equity indexes were mostly unchanged for the week, and gold and bitcoin both rose modestly.

Nobody said getting inflation under control would be easy. After more than a year of decelerating price increases from last summer’s peak inflation rate, prices are heading the wrong way once again. Last week’s data release showed the Consumer Price Index jumped to 3.7% in August, up from June’s 3% annual rate, and still well above the Federal Reserve’s 2% annual target. A rebound in energy prices (thanks in part to the aforementioned rally in crude oil) is largely to blame for the disappointing inflation report, while the contribution from food and services continues to decline.

At this week’s FOMC meeting, Fed officials will have to contend with the troubling reversal in CPI while balancing the risks to economic growth.

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The Weekly Grind: September 11, 2023

Week in Review

Crude oil was the week’s big winner, climbing more than 2% to reach its highest levels of the year. That happened even as stock prices erased some of the prior week’s gains, led by a 1.9% decline in the NASDAQ Composite. The US Dollar index finished higher for the eighth straight week – only the third time it’s accomplished that feat in the last 40 years. The Dollar’s strength hasn’t been great for alternatives: Bitcoin had its lowest weekly close since March, and gold prices fell 1%.

Last Tuesday, Saudi Arabia decided to extend its current voluntary oil production cuts of million barrels per day to the end of the year. Russia extended voluntary production cuts of their own. Together, Riyadh and Moscow lead OPEC+, a consortium of oil producing countries that together attempt to influence the global oil market and maximize profit. The impact of OPEC+ production cuts on oil prices has a mixed historical record. Supply cuts are usually in response to weakening economic conditions, where declines in supply are often more than offset by an overwhelming drop in demand. This time, though, the group’s efforts are getting results. WTI Crude has risen from below $70 in June to almost $90 per barrel today.

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The Weekly Grind: September 5, 2023

Week in Review

Stocks ended August on a high note, as the NASDAQ Composite led large cap indexes with a 3.25% gain. The catalyst was US Treasury rates, which fell for the first time since early July. The US Dollar index, however, rose for the seventh straight week, a streak matched only once over the last 20 years. Gold notched its second straight week of gains, while crude oil jumped 7% to reach its highest level since November.

The labor market is still strong, but we’re starting to see signs of softening. Last week, we learned that job openings in July fell to 8.8M. That’s still more than the current number of unemployed persons in the BLS nonfarm payrolls report, but down sharply from last year’s peak of more than 12M openings. Friday’s job report confirmed the slowdown. Even though the economy added 187,000 jobs in August, negative revisions to payrolls from the prior two months totaled 110,000, resulting in a net of just 77,000 jobs. With those revisions, the unemployment rate rose from 3.5% to 3.8% – the highest mark in 18 months.

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The Weekly Grind: August 28, 2023

Week in Review

Growth stock rebounded last week, helping the NASDAQ climb 2% even while interest rates rose and the US Dollar strengthened for the sixth straight week. The Dow Jones Industrial Average didn’t participate in the rally, as the value-oriented index fell modestly. Gold gained after four weeks of declines, and crude oil dropped 1.75% to close back below $80 per barrel.

Federal Reserve Chair Jerome Powell delivered a lengthy address at the Jackson Hole Economic Symposium on Friday, potentially capping off the most dramatic cycle of interest rate hikes since the 1980s. While Powell acknowledged that inflation remains too high and the Fed is willing to raise rates further if they deem it appropriate to bring inflation down to their 2% goal, he believes the actions they’ve taken over the last year will allow them to “proceed carefully as we assess the incoming data and the evolving outlook and risks.”

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Waiting on Silver

We keep waiting on silver to take a leadership role.

Prices for silver and gold tend to be highly correlated, but silver tends to move in greater magnitudes. As such, when precious metals are rising, we expect silver to outperform. That’s what we’ve typically seen during gold’s best runs. These days, silver refuses to lead.

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(Premium) FICC in Focus – August

We’re experiencing a bit of déjà vu this month.

It seems like we’ve traveled back in time to 2022, when only two things seemed to matter: interest rates and the US Dollar. Those familiar foes have returned to the fore of the investment landscape, pressuring stock prices along the way.

Each time interest rose last year, the S&P 500 fell. And each time rates offered a reprieve, stocks rallied in relief. Look at how closely the two moved together:

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The Weekly Grind: August 21, 2023

Two familiar foes have returned for investors: higher interest rates and a strong US Dollar. Those two were responsible for the broad weakness in financial markets during 2022, and their resurgence was not well received by asset prices last week. Stock indexes fell more than 2%, as did crude oil. So-called ‘safe-havens’ weren’t any better. Gold dropped 1.3%, while Bitcoin had its worst week of the year.

It’s still early in the quarter, but data for Q3 has been overwhelmingly strong so far. Following retail sales, housing starts, and industrial production reports last week, the Atlanta Fed’s GDPNow GDP estimate (a model based solely on data that’s already been reported) was revised up to a 5.8% annual rate. That’s roughly triple the Blue Chip consensus and would mark the fastest pace of growth since the early 1980s (not including the post-COVID rebound). Meanwhile, the Conference Board’s Leading Economic Index just fell for the 16th straight month.

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