Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager. Today I wanted to take a few minutes to give you an update on the markets for the month of August.
Market Returns for August:
Stocks started the month of August on a down note, as we saw the S&P 500 pull back by about 4-4.5%, as interest rates ticked higher. However, the last week of August, stocks had gained momentum to the upside and gained back some of those losses. For the month of August, the S&P 500 ended slightly negative, down by about 1.77%, which was actually its first monthly loss since February of this year. The Nasdaq was down 2% for the month, as well. For the year, the S&P 500 is currently up close to 19%.
Interest rates moved higher in early August, as the 10-year Treasury briefly reached a 15-year high, however, have settled back down over the last few weeks, and is now currently yielding around 4.09%. Much of the move higher in yields was driven by investors embracing a soft landing for the economy and a higher-for-longer rate environment. These higher rates have caused mortgage rates to continue to climb higher, as the 30-year rate was over 7% in August. The Bloomberg Aggregate Bond Index has also lost steam with three consecutive monthly declines and is now only up about 1.1% for the year.
Interest Rates & Job Growth:
Last week, Fed Chair Powell was at their annual meeting at Jackson Hole and acknowledged that progress has been made with lowering inflation and reiterating that the Fed will be careful where it goes from here, however the bank leader said inflation is still above where policymakers feel comfortable. He noted that the Fed will remain flexible as it contemplates future rate hikes but gave little indication that it’s ready to start lowering rates anytime soon. According to the CME FedWatch Tool, there is currently only a 7% probability that the Fed will increase rates at their September 20th meeting and a 37% chance of raising rates at their November meeting.
Recently, job openings and layoffs dropped slightly, which may be a sign the labor market is getting back to pre-pandemic patterns. The number of job openings edged down to 8.8 million in July, dropping from 9.58 million in June. The labor market has also shown consecutive trend declines in new workers and on September 1st, the non-farm payrolls grew by about 187,000 for the month, which was above the Dow Jones estimate for 170,000. The unemployment rate did tick higher to 3.8% as the labor force participation rate increased to 62.8%, the highest since February 2020.
Outlook:
The Fed and interest rates will remain top of mind for investors as we head into September, as investors will look for signs that inflation continues to move lower. We expect that investors will be keeping a close eye on the banking sector and the risk of higher rates for longer and how that will impact everything from the consumer with higher mortgage and car loan rates, and commercial debt refinancing over the next several years. The consumer has been resilient this year, however beginning in October, many consumers will have to start paying on their student loans, which could lead to less disposable income. As always, thanks for joining me for this month’s market update.
