A government shutdown was averted for 45 days, through mid-November
All of the majors were down to end Q3
AI momentum increased this week following updates from Amazon, Meta, and OpenAI
Government
A government shutdown was averted after House Speaker McCarthy put forward a bill that was approved on a bipartisan basis in both the House and Senate before being signed by President Biden on Saturday night. The bill will keep the government funded for 45 days through mid-November. The bill was passed without additional funding for Ukraine, which members of both parties said would be addressed in the weeks ahead.
Markets
The major averages were mixed this week but there was nothing mixed as we end the quarter. The S&P hit its YTD closing high of 4588.96 on July 31st but lost momentum, with the decline accelerating in September when the index moved back below its 50- and 100-day moving averages.
All of the majors were down for the quarter:
Dow falling (2.62%)
S&P down (3.65%)
Nasdaq down (4.12%)
Russell 2000 falling (5.49%)
Fed’s Policy Trajectory
The main thread of the market narrative continued to be the Fed’s policy trajectory. In July, the FOMC hiked by 25bp, as had been widely forecasted; in September, the Fed decided to hold rates steady, again as expected.
But there seemed to be a growing acceptance of the Fed’s higher-for-longer mantra, which was manifested in a September dot plot that showed median expectations for only 50bp in rate cuts for 2024 (vs the 100bp in the June edition).
And while the market has been looking for some assurance that the Fed is at its ceiling for this rate cycle, policymakers’ projections continued to lean toward one more hike before year-end.
Bearish Narrative
The bearish narrative this week continued to the higher cost of borrowing with the 10Y yield hitting to 4.69%, the highest since 2007, before falling toward the end of the week. Fedspeak continued to hit the higher-for-longer message given some areas of sticky inflation and resilient economic growth (FT).
Fears of a policy mistake/hard landing remain an overhang with many expecting conditions to further tighten following the lagged impact of past rate hikes. Oil also remains elevated given tight supply dynamics and depleted inventories.
Economists continue to point to growth headwinds from strikes, student loan repayments, waning fiscal support, and some high frequency data showing weakening consumer spending.
Bullish Narrative
There was some bullish narrative this week that centered around stabilization of rates, particularly at the policy-sensitive short end of the curve. There were some positive signals around disinflation in Friday’s September Core PCE report, which was cooler than expected on a m/m basis, while the three-month annualized basis fell to 2.2%, or just slightly above the Fed’s 2% target (Reuters).
Fed Rate Path: Week 39
Market pricing around the Fed rate path was fairly stable this week, with a ~65% chance of a hold through year end and a year-end 2024 median rate of around 4.75%. Some analysts continued to say they expect Fed to cut faster than the Fed itself markets expect, and that the high rate backdrop and disinflation momentum takes pressure off the Fed to hike further.
Some other pieces of the upside narrative this week included seasonality tailwinds, some positive earnings takeaways (notably NKE +5.3% and COST +1.1%), and oversold conditions.
Tech valuations are again more reasonable following the recent selloff, while AI momentum picked back up this week following updates from Amazon, Meta, and reports that OpenAI is seeking a $90B valuation in an upcoming share sale.
China also vowed to strengthen policy support this week, including PBoC saying it would step up policy adjustments and support a recovery.
The Baker Hughes rig count was down 7 this week. There are 623 oil and gas rigs operating in the US – Down 142 from last year.
Energy Complex
Price
Last week
% Change (WoW)
Brent Crude Oil
$92.20/bbl
92.39
(0.23)
WTI Crude Oil
$90.79/bbl
90.55
0.84
Heating Oil
$3.30/gallon
3.27
1.96
Natural Gas
$2.93/million BTUs
2.89
1.74
Unleaded Gas
$2.40/gallon
2.52
(4.47)
Metals Complex-
Metals Complex
Price
Last week
% Change (WoW)
Gold
$1,866.10/oz
1944.70
(4.09)
Silver
$22.45/oz
23.81
(5.85)
Palladium
$1,256.00/oz
1257.50
(0.01)
Platinum
$915.90/oz
933.40
(1.95)
Copper (per ton)
$8,280.26
8188.55
1.12
Week 39 Employment Picture
Weekly Unemployment Claims– Released Thursday 9/28/2023 –In the week ending September 23, the advance figure for seasonally adjusted initial claims was 204,000 increasing 2,000 from the previous week’s revised level. The 4-week moving average was 211,000 a decrease of 6,250 from the previous week’s revised average.
August Jobs Report – BLS Summary– Released 9/1/2023 – The US Economyadded 187k nonfarm jobs in August and the Unemployment rate edged up to 3.8%. Average hourly earnings increased 8 cents to $33.82. Hiring highlights include +102k Education and Health Services, +40k Leisure and Hospitality, and +22k Construction.
Average hourly earnings increased 8 cents/0.2% to $33.82.
U3 unemployment rate increased 0.3% to 3.8%. U6 unemployment rate increased 0.4% to 7.1%.
The labor force participation rate increased by 0.2% to 62.8%.
Average work week increased 0.1 hours to 34.4 hours.
Job Openings & Labor Turnover Survey JOLTS – Released 8/29/2023 – The number of job openings decreased to 8.8 million on the last business day of July, the U.S. Bureau of Labor Statistics reported. Over the month the number of hires and total separations were little changed at 5.8 million and 5.5 million, respectively. Within separations, quits (3.5 million) decreased and discharges (1.6 million) changed little.
Employment Cost Index –Released 7/28/2023 – Compensation costs for civilian workers increased 1.0% for the 3-month period ending in June 2023. The 12-month period ending in June 2023 saw compensation costs increase by 4.5. The 12-month period ending June 2022 increased 5.1%. Wages and salaries increased 4.6 percent over the 12-month June 2023 and increased 5.3 percent for the 12-month period ending in June 2022. Benefit costs increased 4.2 percent over the 12-month period ending June 2023 and increased 4.8 percent for the 12-month period ending in June 2022. This report is published quarterly.
Week 39 Economic Data- Blue links take you to data source
Chicago PMI– Released 9/29/2023 – Chicago PMI remained in contraction territory in September decreasing to 44.1 points down from 48.7 points in August. The reading marked the 13th consecutive month of contraction in business activity in the Chicago region, and it was stronger than the previous month.
Personal Income – Released 9/29/2023 – Personal income increased $87.6 billion (0.4 percent at a monthly rate) in August. Disposable personal income (DPI) increased $46.6 billion (0.2 percent). Personal consumption expenditures (PCE) increased $83.6 billion (0.4 percent).
Third Estimate of 2nd Quarter 2023 GDP – Released 9/28/2023 – Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the second quarter of 2023, according to the “third” estimate released by the Bureau of Economic Analysis. The GDP estimate released today is based on more complete source data than were available for the “second” and “advance” estimates which had GDP increasing at 2.1 percent and 2.4 percent respectively. In the first quarter, real GDP increased 2.0 percent. The increase in real GDP reflected increases in consumer spending, nonresidential fixed investment, state and local government spending, private inventory investment, and federal government spending that were partly offset by decreases in exports and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased. The update primarily reflected a downward revision to consumer spending that was partly offset by upward revisions to nonresidential fixed investment, exports, and inventory investment. Imports, which are a subtraction in the calculation of GDP, were revised down.
Durable GoodsReleased 9/27/2023 – New orders for manufactured durable goods in August, up five of the last six months, increased $0.5 billion or 0.2 percent to $284.7 billion, the U.S. Census Bureau announced today. This followed a 5.6 percent July decrease. Excluding transportation, new orders increased 0.4 percent. Excluding defense, new orders decreased 0.7 percent. Machinery, up four of the last five months, led the increase, $0.2 billion or 0.5 percent to $37.8 billion.
New Residential SalesReleased 9/26/2023 – Sales of new single‐family houses in August 2023 were at a seasonally adjusted annual rate of 675,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.7 percent below the revised July rate of 739,000 but is 5.8 percent above the August 2022 estimate of 638,000. The median sales price of new houses sold in August 2023 was $430,300. The average sales price was $514,000. At the end of August, the seasonally adjusted estimate of new homes for sale was 436,000, a supply of 7.8 months at the current sales rate.
Consumer Confidence– Released 9/26/2023 – Consumer Confidence decreased for the second consecutive month in September to 103.0, down from 108.7 in August. Expectations fell back below 80, the level that historically signals a recession within the next year. Consumer fears of an impending recession also ticked back up, consistent with the short and shallow economic contraction anticipated for the first half of 2024. Consumers continued to be preoccupied with rising prices in general, and for groceries and gasoline in particular. Consumers also expressed concerns about the political situation and higher interest rates.
Recent Economic Data – Blue Links bring you to data source
Existing Home SalesReleased 9/21/2023 – August 2023 brought 4.04 million in sales, a decrease of 0.7% from July. The median sales price was $407,100. The current unsold housing inventory was 3.3 months of inventory.
Housing Starts– Released 9/19/2023– August housing starts came in at 1,283,000, 11.3% below the July estimate and 14.8% below the August 2022 rate. Building permits were 6.9% above the July rate at $1,543,000 and 2.7% below the August 2022 rate.
Industrial Production and Capacity Utilization Released 9/15/2023 – Industrial production increased 0.4% in August. Utilities output increased 0.9%. Manufacturing increased 0.1%. Mining increased 1.4%. Capacity utilization increased to 79.7% in August, in line with its long-run average.
Retail Sales– Released 9/14/2023– Headline retail sales increased 0.6% in August and are up 2.5% above August 2022.
Producer Price Index– Released 9/14/2023– The Producer Price Index for final demand increased 0.7 percent in August, seasonally adjusted. Final demand increased 0.4 percent in July. On an unadjusted basis, the index for final demand moved up 1.6 percent for the 12 months ended in August.
Consumer Price Index –Released 9/13/2023 – The Consumer Price Index for All Urban Consumers rose 0.6 percent in August on a seasonally adjusted basis, after increasing 0.2 percent in July. Over the last 12 months, the all items index increased 3.7 percent before seasonal adjustment.
Consumer Credit– Released 9/8/2023– Consumer credit increased at a seasonally adjusted annual rate of 2.5 percent in July. Revolving credit increased at an annual rate of 9.2 percent, while nonrevolving credit increased at an annual rate of 0.2 percent.
U.S. Trade Balance– Released 9/6/2023 – The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $65.0 billion in July, up $1.3 billion from $63.7 billion in June. June exports were $251.7 billion, $3.9 billion more than June exports. July imports were $316.7 billion, $5.2 billion more than June imports. The July increase in the goods and services deficit reflected an increase in the goods deficit of $2.0 billion to $90.0 billion and an increase in the services surplus of $0.7 billion to $25.0 billion.
PMI Non-Manufacturing Index–Released 9/5/2023 – Economic activity in the services sector expanded in August for the eighth consecutive month as the Services PMI® registered 54.5 percent, 1.8 percentage point higher than July’s reading of 52.7 percent.
U.S. Construction Spending– Released 9/1/2023 – Construction spending during July 2023 was estimated at a seasonally adjusted annual rate of $1,972.6 billion, 0.7 percent above the revised June estimate of $1,958.9 billion. The July figure is 5.5 percent above the July 2022 estimate of $1,869.3 billion.
PMI Manufacturing Index – Released 9/1/2023 – The August Manufacturing PMI registered 47.6 percent, 1.2 percentage points higher than the 46.4 percent recorded in July. Regarding the overall economy, this figure indicates a ninth month of contraction after a 30-month period of expansion. The New Orders Index remained in contraction territory at 46.8 percent, 0.5 percentage points lower than the figure of 47.3 percent recorded in July. The Production Index reading of 50.0 percent is a 1.7-percentage point increase compared to July’s figure of 48.3 percent.
US Light Vehicle Sales– Released 8/31/2023 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.732 million units in August.
Next week we get data on Manufacturing PMI, U.S. Construction Spending, Services PMI, the U.S. Trade Balance, Consumer Credit, JOLTS, and the September Jobs Report.
Weekly Market Update | Week 39, 2023
Table of Contents
Week 39 Key Talking Points
Government
A government shutdown was averted after House Speaker McCarthy put forward a bill that was approved on a bipartisan basis in both the House and Senate before being signed by President Biden on Saturday night. The bill will keep the government funded for 45 days through mid-November. The bill was passed without additional funding for Ukraine, which members of both parties said would be addressed in the weeks ahead.
Markets
The major averages were mixed this week but there was nothing mixed as we end the quarter. The S&P hit its YTD closing high of 4588.96 on July 31st but lost momentum, with the decline accelerating in September when the index moved back below its 50- and 100-day moving averages.
All of the majors were down for the quarter:
Fed’s Policy Trajectory
The main thread of the market narrative continued to be the Fed’s policy trajectory. In July, the FOMC hiked by 25bp, as had been widely forecasted; in September, the Fed decided to hold rates steady, again as expected.
But there seemed to be a growing acceptance of the Fed’s higher-for-longer mantra, which was manifested in a September dot plot that showed median expectations for only 50bp in rate cuts for 2024 (vs the 100bp in the June edition).
And while the market has been looking for some assurance that the Fed is at its ceiling for this rate cycle, policymakers’ projections continued to lean toward one more hike before year-end.
Bearish Narrative
The bearish narrative this week continued to the higher cost of borrowing with the 10Y yield hitting to 4.69%, the highest since 2007, before falling toward the end of the week. Fedspeak continued to hit the higher-for-longer message given some areas of sticky inflation and resilient economic growth (FT).
Fears of a policy mistake/hard landing remain an overhang with many expecting conditions to further tighten following the lagged impact of past rate hikes. Oil also remains elevated given tight supply dynamics and depleted inventories.
Economists continue to point to growth headwinds from strikes, student loan repayments, waning fiscal support, and some high frequency data showing weakening consumer spending.
Bullish Narrative
There was some bullish narrative this week that centered around stabilization of rates, particularly at the policy-sensitive short end of the curve. There were some positive signals around disinflation in Friday’s September Core PCE report, which was cooler than expected on a m/m basis, while the three-month annualized basis fell to 2.2%, or just slightly above the Fed’s 2% target (Reuters).
Fed Rate Path: Week 39
Market pricing around the Fed rate path was fairly stable this week, with a ~65% chance of a hold through year end and a year-end 2024 median rate of around 4.75%. Some analysts continued to say they expect Fed to cut faster than the Fed itself markets expect, and that the high rate backdrop and disinflation momentum takes pressure off the Fed to hike further.
Some other pieces of the upside narrative this week included seasonality tailwinds, some positive earnings takeaways (notably NKE +5.3% and COST +1.1%), and oversold conditions.
Tech valuations are again more reasonable following the recent selloff, while AI momentum picked back up this week following updates from Amazon, Meta, and reports that OpenAI is seeking a $90B valuation in an upcoming share sale.
China also vowed to strengthen policy support this week, including PBoC saying it would step up policy adjustments and support a recovery.
Fixed Income:
Yield Curve:
July FOMC Statement July Fed Minutes Balance Sheet Reduction Plan Credit, Liquidity and Balance Sheet Federal Reserve Dot Plots
Treasury.gov yields FOMC Policy Normalization Statement Longer- Run Goals Jan 2022
Foreign Exchange Market –
Energy Complex-
The Baker Hughes rig count was down 7 this week. There are 623 oil and gas rigs operating in the US – Down 142 from last year.
Metals Complex-
Week 39 Employment Picture
Weekly Unemployment Claims – Released Thursday 9/28/2023 –In the week ending September 23, the advance figure for seasonally adjusted initial claims was 204,000 increasing 2,000 from the previous week’s revised level. The 4-week moving average was 211,000 a decrease of 6,250 from the previous week’s revised average.
August Jobs Report – BLS Summary – Released 9/1/2023 – The US Economyadded 187k nonfarm jobs in August and the Unemployment rate edged up to 3.8%. Average hourly earnings increased 8 cents to $33.82. Hiring highlights include +102k Education and Health Services, +40k Leisure and Hospitality, and +22k Construction.
Job Openings & Labor Turnover Survey JOLTS – Released 8/29/2023 – The number of job openings decreased to 8.8 million on the last business day of July, the U.S. Bureau of Labor Statistics reported. Over the month the number of hires and total separations were little changed at 5.8 million and 5.5 million, respectively. Within separations, quits (3.5 million) decreased and discharges (1.6 million) changed little.
Employment Cost Index – Released 7/28/2023 – Compensation costs for civilian workers increased 1.0% for the 3-month period ending in June 2023. The 12-month period ending in June 2023 saw compensation costs increase by 4.5. The 12-month period ending June 2022 increased 5.1%. Wages and salaries increased 4.6 percent over the 12-month June 2023 and increased 5.3 percent for the 12-month period ending in June 2022. Benefit costs increased 4.2 percent over the 12-month period ending June 2023 and increased 4.8 percent for the 12-month period ending in June 2022. This report is published quarterly.
Week 39 Economic Data- Blue links take you to data source
Chicago PMI – Released 9/29/2023 – Chicago PMI remained in contraction territory in September decreasing to 44.1 points down from 48.7 points in August. The reading marked the 13th consecutive month of contraction in business activity in the Chicago region, and it was stronger than the previous month.
Personal Income – Released 9/29/2023 – Personal income increased $87.6 billion (0.4 percent at a monthly rate) in August. Disposable personal income (DPI) increased $46.6 billion (0.2 percent). Personal consumption expenditures (PCE) increased $83.6 billion (0.4 percent).
Third Estimate of 2nd Quarter 2023 GDP – Released 9/28/2023 – Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the second quarter of 2023, according to the “third” estimate released by the Bureau of Economic Analysis. The GDP estimate released today is based on more complete source data than were available for the “second” and “advance” estimates which had GDP increasing at 2.1 percent and 2.4 percent respectively. In the first quarter, real GDP increased 2.0 percent. The increase in real GDP reflected increases in consumer spending, nonresidential fixed investment, state and local government spending, private inventory investment, and federal government spending that were partly offset by decreases in exports and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased. The update primarily reflected a downward revision to consumer spending that was partly offset by upward revisions to nonresidential fixed investment, exports, and inventory investment. Imports, which are a subtraction in the calculation of GDP, were revised down.
Durable Goods Released 9/27/2023 – New orders for manufactured durable goods in August, up five of the last six months, increased $0.5 billion or 0.2 percent to $284.7 billion, the U.S. Census Bureau announced today. This followed a 5.6 percent July decrease. Excluding transportation, new orders increased 0.4 percent. Excluding defense, new orders decreased 0.7 percent. Machinery, up four of the last five months, led the increase, $0.2 billion or 0.5 percent to $37.8 billion.
New Residential Sales Released 9/26/2023 – Sales of new single‐family houses in August 2023 were at a seasonally adjusted annual rate of 675,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.7 percent below the revised July rate of 739,000 but is 5.8 percent above the August 2022 estimate of 638,000. The median sales price of new houses sold in August 2023 was $430,300. The average sales price was $514,000. At the end of August, the seasonally adjusted estimate of new homes for sale was 436,000, a supply of 7.8 months at the current sales rate.
Consumer Confidence– Released 9/26/2023 – Consumer Confidence decreased for the second consecutive month in September to 103.0, down from 108.7 in August. Expectations fell back below 80, the level that historically signals a recession within the next year. Consumer fears of an impending recession also ticked back up, consistent with the short and shallow economic contraction anticipated for the first half of 2024. Consumers continued to be preoccupied with rising prices in general, and for groceries and gasoline in particular. Consumers also expressed concerns about the political situation and higher interest rates.
Recent Economic Data – Blue Links bring you to data source
Existing Home Sales Released 9/21/2023 – August 2023 brought 4.04 million in sales, a decrease of 0.7% from July. The median sales price was $407,100. The current unsold housing inventory was 3.3 months of inventory.
Housing Starts– Released 9/19/2023 – August housing starts came in at 1,283,000, 11.3% below the July estimate and 14.8% below the August 2022 rate. Building permits were 6.9% above the July rate at $1,543,000 and 2.7% below the August 2022 rate.
Industrial Production and Capacity Utilization Released 9/15/2023 – Industrial production increased 0.4% in August. Utilities output increased 0.9%. Manufacturing increased 0.1%. Mining increased 1.4%. Capacity utilization increased to 79.7% in August, in line with its long-run average.
Retail Sales– Released 9/14/2023 – Headline retail sales increased 0.6% in August and are up 2.5% above August 2022.
Producer Price Index – Released 9/14/2023 – The Producer Price Index for final demand increased 0.7 percent in August, seasonally adjusted. Final demand increased 0.4 percent in July. On an unadjusted basis, the index for final demand moved up 1.6 percent for the 12 months ended in August.
Consumer Price Index – Released 9/13/2023 – The Consumer Price Index for All Urban Consumers rose 0.6 percent in August on a seasonally adjusted basis, after increasing 0.2 percent in July. Over the last 12 months, the all items index increased 3.7 percent before seasonal adjustment.
Consumer Credit – Released 9/8/2023 – Consumer credit increased at a seasonally adjusted annual rate of 2.5 percent in July. Revolving credit increased at an annual rate of 9.2 percent, while nonrevolving credit increased at an annual rate of 0.2 percent.
U.S. Trade Balance – Released 9/6/2023 – The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $65.0 billion in July, up $1.3 billion from $63.7 billion in June. June exports were $251.7 billion, $3.9 billion more than June exports. July imports were $316.7 billion, $5.2 billion more than June imports. The July increase in the goods and services deficit reflected an increase in the goods deficit of $2.0 billion to $90.0 billion and an increase in the services surplus of $0.7 billion to $25.0 billion.
PMI Non-Manufacturing Index – Released 9/5/2023 – Economic activity in the services sector expanded in August for the eighth consecutive month as the Services PMI® registered 54.5 percent, 1.8 percentage point higher than July’s reading of 52.7 percent.
U.S. Construction Spending– Released 9/1/2023 – Construction spending during July 2023 was estimated at a seasonally adjusted annual rate of $1,972.6 billion, 0.7 percent above the revised June estimate of $1,958.9 billion. The July figure is 5.5 percent above the July 2022 estimate of $1,869.3 billion.
PMI Manufacturing Index – Released 9/1/2023 – The August Manufacturing PMI registered 47.6 percent, 1.2 percentage points higher than the 46.4 percent recorded in July. Regarding the overall economy, this figure indicates a ninth month of contraction after a 30-month period of expansion. The New Orders Index remained in contraction territory at 46.8 percent, 0.5 percentage points lower than the figure of 47.3 percent recorded in July. The Production Index reading of 50.0 percent is a 1.7-percentage point increase compared to July’s figure of 48.3 percent.
US Light Vehicle Sales– Released 8/31/2023 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.732 million units in August.
Next week we get data on Manufacturing PMI, U.S. Construction Spending, Services PMI, the U.S. Trade Balance, Consumer Credit, JOLTS, and the September Jobs Report.
Data Sources:
Conference Board Economic Indicators Bureau of Economic Analysis (BEA) Congressional Budget Office (CBO) U.S. Bureau of Labor Statistics (BLS) Federal Reserve Economic Data (FRED Charts)
CME Fed Watch U.S. Treasury – Yields U.S. Census Bureau Institute for Supply Management (ISM) Weekly DOL Employment Data BLS Monthly Jobs Report JOLTS All capital in one visualization 2020
US Energy Admn (EIA) BLS Consumer Price Index CPI BLS Producer Price Index PPIAtlanta Fed GDPNOW NY Fed Nowcast GDP US Census Bureau Housing Starts U.S. Energy Admn
Consumer Credit USCB Retail Sales Construction Spending Federal Reserve Dot Plots 2017 NY Empire Index Philadelphia Federal Reserve P/E Ratio Data -Yardeni Research
Technical Analysis Info: Koyfin.com StockCharts.com – Financial Charts Exponential vs Simple moving average
Other links: 1973 Arab Oil Embargo Hunt Brothers Silver Asian Contagion Long-Term Capital bailout
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