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Equities Slip Despite Encouraging Inflation Report
Equities markets slipped last week as fears of a potential US government shutdown weighed on investors more than an encouraging inflation report. Global equities (represented by the MSCI All Country World Index) were down -0.89%, and domestic stocks (represented by the S&P 500 Index) were down -0.71%.
The Fed’s preferred inflation gauge, the core Personal Consumption Expenditure (PCE) price index, rose at a 3.9% annual rate for August, the slowest reading in over 2 years. On a month-over-month basis, prices rose 0.1%, which was below expectations and the lowest monthly rate since November 2020. While still nearly double the Fed’s long-term target inflation rate of 2%, the index continues to follow its disinflationary trend lower. Headline PCE (all items) rose at a heightened month-over-month rate of 0.4%, fueled by higher energy prices.
Despite the inflation report on Friday, markets ended the day lower as fears of a potential government shutdown on the 1st of the month weighed on investors going into the weekend. Over the weekend, the Senate did pass the continuing resolution to keep the government open for an additional 45 days and buys Congress more time to sort out spending legislation. President Biden signed the bill into law late Saturday, just hours before the October 1st shutdown date of government.
Despite recent signs of weakening manufacturing new orders, durable goods orders for August surprised to the upside as headline orders rose 0.2% month-over-month compared to expectations of a decline.
Through three quarters of 2023, global and domestic equities have both performed in double digit territory even with September’s decline. US Fixed Income has pulled back as yields have surged in the past few months.
The Labor Market
This week a labor market update for September will be released. In August, the unemployment rate rose to 3.8% from 3.5%, and the economy created only 187,000 nonfarm payrolls, the third consecutive month below 200,000 and well off the last 12-month average of 271,000 jobs.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.