Market Commentary: Q3 2023 October 13, 2023
After an impressive start to the year, we saw a downturn in stock performance during the months of August and September. While this period may have been disappointing for investors, recent economic reports seem to display that the economy has shown some promise, which may lead to a year-end rally.
As we step into the final quarter of the year, it becomes clear that the economy has performed better in 2023 than many investors might have initially anticipated. Just a year ago, concerns about high inflation dominated the narrative, fueling fears of a potential recession. However, over the past year, the pace of price increases has slowed and the economy has demonstrated resilience. Expectations regarding future inflation have also lessened.
Let’s explore the key highlights and trends that shaped the quarter.
Currently, inflation isn’t getting worse – but it’s still high. That is the takeaway from the latest Consumer Price Index report showing September inflation with a year-over-year rate of 3.7% (recent history shows it reaching as high as 9.1% back in June 2022). Physical goods prices have stabilized or dropped, while energy related costs, like gasoline and natural gas, have fallen. Vehicle and clothing prices are rising less rapidly due to eased supply chain pressures, but service spending has pushed prices up, especially in housing, with shelter inflation at 7.2% over the past year.
The labor market remains strong with low unemployment and high wage increases. The economy created 336,000 jobs in September, blowing past expectations of a 187,000 job increase. In short, the economy has strong momentum going into the fourth quarter, especially amid concerns which include strikes, student loan payment restart, and a government shutdown. The unemployment rate was steady at 3.8% which is well below average historical levels.
The Federal Reserve
After raising interest rates by a quarter of a percentage point in July, the Federal Open Market Committee (FOMC) elected to keep interest rates unchanged following their September 19th – 20th meeting. They did, however, signal that another rate hike was likely possible before the end of the year.
In his post-announcement press conference, Fed Chair Jerome Powell emphasized that the inflation battle was not finished and future rate hike decisions would be based on economic data.
With the government shutdown averted in late September, the FOMC has their next scheduled meeting for October 31st – November 1st.
Third quarter 2023 index returns:
Past performance does not guarantee future results.
Stay the Course
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