Weekly market update

It was tough week for markets as interest rates continued to climb and investors prepare for next Friday’s speech from Federal Reserve Chair Jerome Powell at the annual Jackson Hole Economic Symposium.  As a result, stocks and bonds both ended the week lower, as inflation adjusted yields hit their highest levels since 2009 and financial conditions meaningfully tightened.  Leading the weakness in stocks were the interest rate sensitive large cap growth names that led the market higher in the first half of 2023, such as Apple, Amazon, and Alphabet (formerly Google) to name a few.  However, it is important to note that pullbacks in August and September are fairly common and despite the recent ~5% pullback, the S&P 500 is still up about 15% on the year.

We are skeptical that Jerome Powell’s speech will depart from the message of Fed policy being data dependent, but last year his nine-minute Jackson Hole speech sent markets reeling, so investors will justifiably enter next week a bit on edge.  However, it is important to note that twelve months ago inflation was surging and rhetoric from the Fed has since become much more balanced, as interest rates have risen meaningfully and inflation has decelerated significantly.

Beyond the Fed, the market will also be closely watching earnings from semiconductor company Nvidia on Wednesday.  Artificial intelligence (AI) has been a notable tailwind for markets and Nvidia has been a market darling as its chips are the essential building blocks for this nascent, but exciting AI story.  Interest rates will also be closely watched as the surge in the 10-year US Treasury above 4% has coincided with the recent market weakness.  In addition, we are closely monitoring China, as the second largest economy in the world appears to be weakening due to a variety of headwinds including high youth unemployment, declining exports, deflation, and a deteriorating real estate market.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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