Bond Yields and Government Shutdown Fears Weigh on Stocks:
Last week proved challenging for stocks as rising bond yields and concerns about a potential government shutdown weighed heavily on market sentiment.
Over the last month, The Dow Jones Industrial Average returned –4.16%, while the S&P 500 returned –5.28%. The Nasdaq Composite Index returned –5.46%.
Source: Charles Schwab & Co, Inc.
Stocks Follow the Bond Market
The bond market drove stock prices for much of last week as investors fretted about rising bond yields. After beginning the week with small gains, stocks resumed their September decline amid weak housing data and a decline in consumer confidence. However, it was the jump in bond yields, which sent the 10-year Treasury yield to near a 15-year high, that may have most undermined investor sentiment.1
After a failed attempt at a rebound mid-week, stocks staged a Thursday rally on a pause in bond yield increases — a rally that extended into Friday morning on an encouraging core personal consumption expenditures (PCE) price index report (the Fed’s preferred inflation gauge). But, the rally faded as traders fixated on a potential government shutdown.
Stocks also reacted to news that the House of Representatives went into recess on Thursday, increasing the prospect of a government shutdown. The sell-off cooled on Friday, adding only incrementally to the week’s accumulated losses.
Mixed Economic Signals
Amid recent signs of a labor market cooling (a hopeful sign for ending rate hikes), last Thursday’s initial jobless claims report showed only a slight increase of 204,000. That was the second-lowest reading since January and below economists’ expectations of 215,000. Continuing claims declined by 12,000.2
That same morning, the final estimate of second-quarter GDP was released, indicating a 2.1 annualized growth rate — unchanged from the previous estimate. However, beneath the headline number, consumer spending was cut to a 0.8% rise from its earlier estimate of 1.7% — a worrisome revision since consumer spending is the engine of the U.S. economy.3
This Week: Key Economic Data
Source: Bloomberg Finance L.P.
This Week: Companies Reporting Earnings
Source: EarningsWhispers
At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.
Author
Gary Aiken
Chief Investment Officer
Concord Asset Management
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Footnotes and Sources
1CNBC, September 26, 2023
2FX Street, September 28, 2023
3MarketWatch, September 28, 2023
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