September 1, 2023 – August Snaps 5-Month Win Streak. All eyes on the Fed in September.
As we anticipated last month, August proved challenging for the markets, snapping the 5-month win streak for stocks. When it was all said and done, all three major indices posted losses for the month, including the S&P 500 index which fell -1.8%, bringing its year-to-date gains down to +18.8%.
Banks started the down draft after a series of credit rating downgrades as rating agencies issued caution on banks who have outsized exposures to commercial real estate. Next, worries about more rate hikes started to arise after Federal Reserve Chair Jerome Powell spoke at the Jackson Hole Economic Symposium, suggesting more monetary policy tightening may be coming. Amid these renewed concerns, the yield on 10-year Treasury notes jumped to 4.34% on August 21, but sold off toward the end of the month, as equities rallied and regained 3% of the losses before the month concluded. This turnaround in both treasuries and equities was attributed to a slew of tame economic data that furthered the argument that disinflation is working and the need for more rate hikes is diminishing.
As much of 2023’s market movements have been driven by the progress with inflation, September will be no different. The next rate hike decision date is September 20, and the current market-based probability of a rate hike is only 6.5% (low chance of happening). Unfortunately, this Fed Meeting doesn’t occur until the end of the month, so I expect increased volatility as daily headlines play tug-o-war.
While I still remain optimistic that market assumptions are correct with the “no hike in September” prediction, there are two concerns floating out there. First, September is historically the worst performing month of the year (August is the 3rd worst) with the S&P 500 having averaged a -1.1% decline since 1928. Second, student loans started accruing interest again on September 1, the first time since March 2020. Collectively Americans currently have over $1 trillion in student loan debt and the impact on borrowers of a resumption of interest accrual could be devastating to themselves, as well as to corporate profits.
As always, we will continue to keep an eye on the markets and alert you of any major changes as they occur.