August 2023 Market Perspective
Coming off solid market performance the first half of the year, the US Equity markets continued to climb in July, nearing their all-time highs and well above their 200-day moving averages. The Dow Jones Industrial Average and S&P 500 were up 3.44% and 3.21%, respectively. The tech-heavy Nasdaq, continuing to outperform the other major indices, was up 4.08% for the month.
International markets posted solid gains as well with developed foreign markets as measured by the MSCI EAFE, up 3.24% and Emerging Markets, as measured by the MSCI Emerging Markets Index, up 6.29%.
The bond market did not perform as well as stocks for the month of July. The Bloomberg Aggregate Bond Index was down 0.07% in July. The yield on the 10-year Treasury rose to 3.97% at the end of July.
On July 26, the Fed increased the federal funds rate by 25 basis points, putting the rate range at 5.25% to 5.50%. Although the Fed increased rates in their July meeting, it is widely expected that they are nearing the end of their tightening monetary policy. Comments from the Fed that they no longer expect the economy to dip into recession in the near future, were seen as a positive revision to their outlook and could signal an end to their rate hiking policy.
The first report for the second quarter’s Gross Domestic Product (GDP) was released, showing higher growth than expected and higher than the 2% that was reported in the first quarter. Expectations for GDP were for a 1.8% increase, while the second quarter came in at an annualized rate of 2.4%. The July jobs report was below expectations for a net gain of 200,000, with 187,000 created. The June jobs report was also revised down to 185,000 from 209,000.
The Fed’s fight against inflation seems to be gaining momentum as measured by the Consumer Price Index (CPI). According to the Bureau of Labor Statistics, headline CPI for July increased 0.2% month-over-month and 3.2% year-over-year. The rate did come in higher than the previous month, however, slightly better than economists expected. The Fed’s preferred gauge on inflation is Core CPI, which excludes volatile food and energy prices, increased 4.7% year-over-year, with a 0.2% month-over-month increase. This was the first time since February of 2021 that core CPI rose just 0.2% in two consecutive months.
The Producer Price Index (PPI), which is a measure of wholesale prices as opposed to what consumers pay, was not by comparison to CPI as encouraging for inflation. The Bureau of Labor Statistics reported the biggest monthly gain since January for headline PPI, rising 0.3% for the month. Core PPI, also increased 0.3%, having the largest increase since November 2022.
Although S&P 500 companies reported a blended earnings decline of 9.1%, with the strong economic data and forecasts for the second half of the year, we are cautiously optimistic that markets will continue their momentum. With this data in mind, we made some changes to our managed portfolios. On the equity holdings, we reduced our allocation to value stocks in favor of the S&P 500 to take better advantage of the swings between the two asset classes, growth and value. We also reduced our allocation to our European focused fund to take advantage of the broader developed foreign markets. In the fixed income holdings, we are beginning to trim our allocations to shorter term holdings in favor of global and intermediate term bonds. We will continue to monitor the economic data as it is reported and make adjustments to take advantage in our managed portfolios. Should you have any questions regarding your investments, please do not hesitate to contact our office.