At TM3 Wealth, it is important that you are well informed about what is happening in the markets. Here are a few of the key topics of conversation that deserve the most attention this month. If you have any questions or would like to continue the conversation, please reach out.
September proved challenging for global stocks and bonds, marking the worst month for stocks in a year, with the S&P 500 down by 5%, and the weakest performance for bonds since February. This was spurred by news that the Federal Reserve plans to keep monetary conditions tight for an extended period1. In the first week of October, yields on 30-year US Treasuries reached 4.97%, the highest since 2010, while 10-year Treasuries hit 4.80%, the highest since 2007x.
Unfortunately, inflation in September did not provide much relief. The Consumer Price Index (CPI) showed prices rose 0.4% in September, primarily due to energy costs2. Core inflation, which excludes food and energy, increased by 0.3%2. While annual headline inflation stayed at 3.7%, core inflation increased to 4.1%, compared to 4.3% in August2. Shelter costs, comprising roughly a third of the total CPI, were responsible for over half of the monthly rise, spurred by a surge in hotel stay rates2. For core inflation to decrease, consistent moderation in the housing sector is crucial3. Prices paid by businesses rose by 0.5% in September due to increased energy and food costs, making it the third consecutive rise4. Rising oil prices are causing concerns about inflation impacting both the consumer as well as business costs, especially with the ongoing conflict in Israel potentially maintaining high prices5.
The labor market continued to outpace expectations, with September’s nonfarm payrolls surging by 336K, exceeding estimates by over 90%6. This was further bolstered by revisions adding 119K jobs for July and August6. However, the household employment survey painted a weaker picture, with an increase of only 86K, versus 222K in August6. Average hourly earnings also showed a subdued growth of 0.2% in September6. The unemployment rate held firm at 3.8%; if it rises to 4.0% in upcoming months, it could indicate the onset of a recession based on the Sahm Rule, a heuristic used to determine when the economy has entered a recession based on unemployment data7. The report also warned of financial tightening and predicted a weaker October payroll report6.
The bottom line: The global economic landscape seems to be teetering on the precipice of a slowdown. Central banks have continued to emphasize the need to maintain elevated interest rates, and given the consistent inflation and labor market data, the likelihood of another Fed rate hike by year’s end has risen8. Rising oil prices may impede the progress made in reducing inflation this year, but U.S. Treasury Secretary Janet Yellen reiterated her belief that the economy is likely to experience a soft landing despite the ongoing conflict in the Middle East9.
Sources:
1. Bloomberg Economics
2.Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
3.Bloomberg Economics
4.Bureau of Labor Statistics, https://www.bls.gov/news.release/ppi.nr0.htm
5.Bloomberg Economics
6.Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
7.Bloomberg Economics
8.Reuters
9.Reuters
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The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
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