Headwinds Converge

Late September is historically a challenging time for the stock market.  This year, no exception as a few headwinds are converging.

  • United Auto Workers (UAW) strike does not have a light at the end of the tunnel, yet!  Increased wages and benefits may impact profitability and vehicle pricing.
  • Government shutdown will happen September 30th @ 11:59 p.m.   I’m thinking that most of us may agree, this is getting ridiculous.  Our trusted government representatives (yes, representatives) on both sides of the aisle need to start acting like fiduciary’s.  Meaning, place our interests first, always.
  • Federal Reserve has made it clear, again and again.  The markets finally are starting to believe the Fed’s intention is to leave rates higher for longer. 

Last week, the Fed, after pausing on raising rates, issued it’s “dot plot” report.  The average of the Fed members opinions concluded the Fed Funds rate will drop to 5.1 by the end of 2024.  Prior to last week, the estimated rate was 4.6%.  The current rate is 5.25 to 5.50%. 

After the Fed waited far too long to begin raising rates, it should be anticipated the same could happen on the back end.  Let’s hope when the economy starts to truly slow, the Fed will react prudently.

Markets Last Week

The above headwinds pushed stock indexes lower for the week.  The Dow was down (1.89%), the S&P 500 (2.93%), the Nasdaq (3.62%) and the Russell 2000 (3.82%).

Over the pond, foreign stocks retreated (2.07%) with Emerging Market stocks off (1.69%)

The 10-year US Treasury yield is hovering around a high not seen since 2007, ended the week with a yield of 4.438%.

  • Is the rising treasury yield in response to the thought our economy will continue to expand?
  • Is the rising yield because the Treasury is issuing a ton of new debt to catch up for debt, they couldn’t raise during the debt ceiling standoff?
  • Does inflation begin trending higher, instead of moderating?  
  • Is the 10-year market rate increase just an overshoot?

Inflation is way off it’s high.  There are signs parts of our economy are slowing.  Logic would expect market interest rates to trend downward.  Let’s hope it’s just uncertainty due to the current headwinds.  Headwinds typically do end, keep that in mind.

This Week

Housing reports will take center stage this week.  The following will be released.

  • Building permits
  • Home Price Index
  • New Home Sales
  • Pending Home Sales

A solid housing market is paramount to a good economy.  Housing has obviously been impacted by rising mortgage rates and lack of adequate supply.

Many potential home buyers are on hold, as prices are elevated with rates higher than in a couple decades.  This needs to work itself out, the sooner, the better.

The Fed’s favorite inflation gauge also is reported this Friday.  The PCE (Personal Consumption Expense) report is closely watched by our Federal Reserve.  If we have a government shutdown at the end of this week, typical monthly reports for the economy will not be released.  This may be the last inflation data point until the shutdown is over.

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