Last Week on Wall Street

Last Week on WallStreet - September 9th, 2023

S&P 500: -1.29% DOW: -0.75% NASDAQ: -1.93% 10-YR: 4.26%

What Happened?

After a three-week win streak on the S&P 500 provided hope the August woes were in the rearview, equities declined on fresh economic data and shifting expectations for the Federal Reserve. Throughout the year, the economic landscape has proven difficult to predict, complicating the task of forming expectations for the Fed's policy decisions. Consequently, every data print has taken on heightened significance and has been met with a market response. This week, these data points were stronger-than-expected, elevating fears that the Fed's hiking cycle may not be over. Markets are currently predicting the FOMC to maintain its pause in September, but the probability of a November hike has crept higher in recent weeks.

Beneath the surface, ongoing supply-demand dynamics in the oil market drove Energy (+3.5%) stocks higher while Utilities (+0.4%) names rose marginally. All other sectors fell with a diverse group of Industrials (-2.3%), Technology (-1.6%), and Staples (-1.5%) leading the way down.


US Economy Grew Modestly in Recent Weeks, Fed Survey Shows

  • U.S. economic growth was modest amid a cooling labor market and slowing inflation pressures in July and August
  • The report noted that a rising number of households had exhausted savings built up during the coronavirus pandemic leading to an increase in borrowing
  • Housing remains an issue and that the supply for single-family homes "remained constrained", the report stated
  • Businesses renewed their continued expectations for wage growth to slow

The key takeaway - The Federal Reserve's review of economic data to guide their upcoming meeting showed a blend of positive and negative factors for the central bank to consider. Across most key indicators, there is an encouraging trend for the Fed, with both inflation and job gains showing signs of slowing in recent months. However, the absolute levels of these figures remain significantly above the target range, and there are potential risks of stagnation or a reversal in these trends. The economy is currently experiencing above-trend growth, primarily driven by the services sector. This growth has the potential to sustain higher inflationary pressures and maintain a tight labor market. Additionally, fluctuations in oil markets have led to an increase in fuel costs, which could have an effect on prices in other segments of the market and hinder the decline in inflation.


Growth in US Service Sector Accelerates in August, ISM Survey Shows

  • An ISM barometer of conditions at service companies such as restaurants strengthened to 54.5% in August from 52.7%
    • Economists expected a fall to 52.5%
  • Underlying readings were strong as the activity, new orders, employment, and price gauges all rose
  • The employment and price gauges rose 4% and 2.1% respectively showing renewed strength in labor and inflation

The key takeaway - The US economy's key bastion of strength recorded another impressive month in August, accelerating growth despite expectations of a slight deceleration. The unexpectedly resilient US consumer has powered the services sector to 8 consecutive months of expansion. Data contained in this report supports the sector's resilience in the months ahead, as both robust activity and new order growth signal a sustained upward trajectory. However, the consumer that has provided the fuel for this expansion may begin to lose steam over the medium term. Other data points indicate consumers have drawn down their excess savings accumulated during the pandemic and shifted to borrowing funds via credit cards. Elevated borrowing costs could potentially constrain Americans' capacity for consumption, leading to a slowdown not only in the services sector but also across the broader economy.


US Jobless Claims Fall to 216,000, Lowest Level Since February

  • Initial jobless benefit claims fell by 13,000 to 216,000 in the week ended Sept. 2
    • Economists had estimated new claims would rise 2,000 to 230,000
  • The number of people already collecting jobless benefits in the week ended Aug. 26 fell by 40,000 to 1.68 million
  • This fall in claims marks the fourth straight week of declines

The key takeaway - The ongoing decrease in jobless claims suggests renewed strength in the labor market, with fewer individuals filing for unemployment benefits. Despite many experts predicting a coming recession, the labor market has not exhibited any significant signs of slowdown. Companies have refrained from extensive layoffs and have maintained a consistent pace of hiring. Although the August jobs report from last week revealed some loosening in the labor market as workers returned, the demand for employees remains strong, while the supply of available workers continues to fall short of meeting these demands.


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