Monthly Market Update – August 2023

By Simmons Investment Advisors on September 1, 2023

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Headlines From Last Month:

• Earnings: for the 2nd quarter is winding down, with earnings per share declining around 4.5% on a year-over-year basis:
  • This was the worst quarter since Covid.
  • Despite the decline, results came in better than anticipated.
• Jackson Hole Symposium:
  • Fed Chairman Powell said that the FOMC is prepared to raise rates further, as needed.
  • He reiterated that they continue to watch economic datapoints closely.
  • An inflation rate of 2% remains their target.
• China’s economic slowdown has been cause for concern for domestic and international stocks:
  • Growth in China is stalling as consumer prices are falling, a real estate crisis is deepening, and exports are slumping.
  • The Hang Seng is down over 20% from its peak in January.
  • The Chinese Yuan fell to its lowest level in 16 years.
  • China announced stimulus late in August.
• Economic Data:
  • Inflation:
    • Consumer Price Index:
      • CPI increased from 3.0% to 3.2% in July (versus the expected increase to 3.3%), the first rise since July 2022.
      • Core CPI (which excludes food and energy costs) rose 4.7% vs last year.
    • Producer Price Index:
      • PPI rose 0.3% in July, above the expected 0.2%
      • The index rose 0.1% in June, after falling -0.4% in May.
  • Retail Sales jumped by 0.7% in July after increasing 0.3% in June.
  • Employment/Unemployment:
    • The US economy added 187K jobs in July, below expectations for 200K.
    • The Unemployment Rate dipped from 3.6% to 3.5%.
    • Non-Farm Payrolls rose 187K, less than the anticipated increase of 200K.
  • US GDP (Gross Domestic Product) for the 2nd quarter was revised down from 2.4% to 2.1%, but still up from 2.0% in the 1st quarter.
  • PCE (Personal-Consumption Expenditures Index) rose 4.2% from a year ago, up from 4.1% in June.

US Equities:

• Stocks declined in August, snapping a 5-month winning streak for the S&P 500 and the Nasdaq, with Growth losing less than Value.
• Multiple credit rating downgrades (see the US Fixed Income bullet points below) put pressure on the financial sector – lower ratings mean new debt issuance will cost issuers more (via higher coupons/yields), cutting into future profits.
• Higher bond yields have pressured stocks, offering competitive rates with less risk.
• The S&P 500 is now up 26% since the Oct ‘22 low, the Nasdaq by 37.4% from its Dec ’22 low, and the Dow up 20.9% from its Sept ’22 low.
• The S&P 500 is 6.25% from its all-time high, set back in late 2021. The Dow is 5.35% from its peak and the Nasdaq is 12.6% from its high.
• August 2023 Performance:
  • Dow fell -2.36%
  • S&P 500 lost -1.77%
  • Nasdaq declined -2.17%
• Year to date thru August 31st, 2023:
  • Dow is up 4.75%
  • S&P 500 is up 17.40%
  • Nasdaq is up 34.09%

US Fixed Income:

• Fitch downgraded the United States’ long-term credit rating from AAA to AA+, citing the country’s expected fiscal deterioration over the next three years, the growing debt burden and the issues related to political standoffs over the debt ceiling.
  • The last time the US received a credit downgrade was in 2011, when S&P sent it to AA+.
  • The downgrade drew criticism from Wall Street analysts, Washington lawmakers, and US Treasury Secretary Janet Yellen.
  • Yields increased on the news, while stocks sold off.
• Moody’s downgraded the credit rating on 10 small and mid-sized banks on August 7th due to stress from higher interest rates, a potential recession next year, and struggling commercial real estate assets.
  • Stocks dropped on the downgrades.
  • It also put several major banks under review for potential downgrades, warning that the banking sector wasn’t out of the woods yet.
• S&P Global cut its credit ratings later in the month on multiple regional banks with high commercial real estate exposure.
• US Treasury yields surged early in August indicating that the US economy is not in a recession and that it is doing quite well, but then settled near the July levels.
• The 10-year US Treasury peaked at 4.35%, its highest level since 2007.
• As bond yields have risen over the past 3 years, the rate on 30-year mortgages has as well – it is now around 7.5%.
• Yields ended August close to their July month-end levels:
  • 5.35% (1-year)
  • 4.83% (2-year)
  • 4.09% (10-year)
• As a point of reference, at July month-end, yields were at:
  • 5.37% (1-year)
  • 4.89% (2-year)
  • 3.99% (10-year)

Regards,

Mike & Steve

DISCLOSURE: All data is as of previous month-end (Aug 30, 2023). Sources include Hightower Advisors, LLC, FactSet,
Barron’s, www.cnbc.com, https://www.cnn.com/business, https://finance.yahoo.com, and other public websites.