Tucker Financial Weekly Market Review: September 1st, 2023

Equity markets put a challenging August in the rearview mirror last week with a bounce higher from short- term oversold levels. Highlights of the week included a very busy economic calendar which seemed to have left markets with somewhat of a Goldilocks feeling heading into the long Labor Day weekend. U.S. markets closed up 2.5%-3.5% while non-U.S. markets were up 0.75%-0.90%. We saw a recovery rally across technology, consumer, and communications while defensives lagged. WTI crude oil rallied to a new 2023 high, now back up over $85, and took the wider commodity complex along for the ride while bond yields retreated further, particularly in the 2-5yr belly of the curve.

• Bespoke reminded us that while September has historically been the worst month of the year (DJIA), October-December have historically been the best. That said, comments like that call for a reminder of the cost of timing the market which, absent a crystal ball, really doesn’t work well.

• The first eight months of the year have been highlighted by dominant growth stocks and lagging small cap stocks. Additionally, they have produced a welcomed mirror image of 2022 when both stocks and bonds fell sharply. 2023 has seen robust gains in stocks and marginal gains in bonds.

• U.S. equity market valuations remain alarmingly high (technology orientation), but non-U.S. market valuations are solidly attractive while market breadth is at its narrowest since 2003.

• Last week’s inflation and job market data sent a dovish ‘JOLT’ into markets last week with softer economic data translating to increased expectations for Fed cuts in 2024.

• A new Financial Conditions Index (FCI) created and monitored closely by the Fed suggests conditions have relaxed back toward a neutral effect on growth thanks largely to the robust equity market rally and resilient housing market valuations.

• An illustration from MSCI lays out the increasing stress happening in commercial real estate with distress and foreclosure counts both clearly on the rise.

• China announced a tax cut on trading and that it plans to take more stimulative steps, but the 2023 equity market is not projecting a favorable runway looking forward with the belief that more concrete steps are needed.

• July Employment Report registered 187,000, above consensus estimate of 170,000 and near the high end of the forecast range of 40,000-190,000. The unemployment rate increased from 3.5% to 3.8% and labor market participation increased 0.2% to 62.8%.
• Average Hourly Earnings grew 0.24% MOM and 4.29% YOY while Personal Income grew 0.20%, all in line with consensus and slightly lower versus the prior month’s pace.
• July’s JOLT Survey reported a notable decline in job openings from the prior month 9.165mm reading to 8.827mm, well below consensus forecast of 9.559mm and the forecast range of 9.524mm – 9.570mm. The opening to unemployed ratio has fallen from 2.0 to 1.5 since January.
• July headline PCE inflation registered 3.28% YOY alongside core readings of 0.20% MOM and 4.24% YOY. Personal Consumption increased from 0.63% to 0.79% MOM.
• U.S. August ISM Manufacturing Index beat consensus (47.6a vs 46.8e) and the final Manufacturing PMI was revised higher from 47.0 to 47.9.
• The August J.P. Morgan Global Manufacturing PMI improved slightly from 48.6 to 49.0.
• 2Q GDP (second estimate) was revised downward from 2.4% to 2.1%, well under the forecast range of 2.4%- 2.5%.
• Consumer Confidence in August came in well short of expectations (106.1a vs 116.5e) and well below the consensus estimate range of 113.0-119.3).
• June Case Shiller Home Price Index grew 0.9% MOM but declined 1.2% for the year, both generally in line. July Pending Home Sales (0.9%a vs -0.4%e) were stronger than expected.