August Market Monitor: Dog Days of Summer

August Market Monitor: Dog Days of Summer

August 16, 2023

Data releases over this year have told a story of a stronger-than-expected economy, with headline CPI falling and the labor market remaining robust. 

The doom-and-gloom feelings many had at the start of the year of an all-but-inevitable recession seem to be replaced by something that looks more optimistic about a soft landing. Instead of worries about the economy, now there are worries of stretched valuations or fear of missing out. We think it’s too early, though, to sound the “all clear” and declare victory for the Fed’s attempt to bring down inflation while avoiding a recession.  

Let's get into the data:

  • 2Q GDP grew faster than expected at 2.4%. The Bureau of Economic Analysis released the “advance” estimate, higher than market expectations of 1.8%. 
  •  12-month CPI was 3.2% in July. The number came in higher than June’s 3.0%, marking the first inflation tick up since June of 2022.  While it is quite a bit lower than last year’s 9% numbers, it still indicates we are not quite at the finish line.  
  • Consumer confidence continued to expand. The Conference Board reported that the Consumer Confidence Index rose to 117.0 in July, up from 110.1 in June.  
  • Retail Sales increased 0.7% in July. On another mark, consumers are feeling good; July’s sales numbers came in better than expected and indicated spending is holding up despite high borrowing costs.  
  •  July non-farm payrolls were 187,000.  The report came in slightly lower than expected but still strong, with an unemployment rate of just 3.5%.  

What Does the Data Add Up To? 

Confidence among businesses and consumers is rising.   In addition to the consumer confidence number mentioned above, a CEO confidence survey has also improved since the beginning of the year.  Confidence in the economy is essential for a simple reason: if you are comfortable with your economic prospects, you are more willing to spend. We can see that in the strong retail sales numbers. Robust spending, though, is not better for bringing inflation down. 

While the inflation number has decreased significantly over the last year, we still have some ways to go to reach the Fed’s 2% target. At the recent June FOMC meeting, the Fed consensus expressed an assumption for two more rate increases in 2023. With the July increase behind us, there is just one more implied rate increase this year, and it’s questionable if that happens at all. Regardless of if it does or not, it seems we are either at or close to the peak for short-term interest rates.  That’s not to say we expect rates to go down in the near term, but it doesn’t seem like they need to get much higher.  

Markets through 8/16/2023

  • The S&P 500 is up 15.9% YTD
  • MSCI EAFE (International Index) is up 9.58% YTD
  • Barclays Aggregate Bond Index is up 0.02% YTD
  • The S&P SmallCap 600 posted 5.43% 

Source: Kwanti

 The Smart Investor

The last days of summer are here, kids are getting back to school, and cooler weather is just a short way away. What should investors focus on as we enter the last few months of the year? 

  •  If you have to start paying back student loans in October, it’s time to start planning. Revisit your budget, and scale back where needed. Are you eligible for a repayment plan? How about refinancing? 
  • You no longer have to accept terrible interest rates on your bank balances.  Make sure you are shopping rates between institutions and making moves where appropriate.  As one example, there is a popular local bank that still pays just 1.04% on a money market with a $50,000 balance, while other banks offer well over 4% for the same money. Rate shopping matters now. 
  • Make a list of the things you need to do in 2023 for tax or savings reasons: 401(k)s or IRAs, HSAs, and charitable giving should be at the top of your list. 

 Despite the markets losing some ground in the last month, the first eight and ½ months of 2023 have been good to investors. We are happy to talk if you have questions or concerns about your investments. Just shoot us a message. 

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities that represent the stock market in general. The Bloomberg Barclays US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate-term investment-grade bonds traded in the United States and is used for measuring the performance of the US bond market. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East. This material is provided as a courtesy and for educational purposes only. Investing involves risk including loss of principal. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. This article contains links to articles or other information that may be contained on a third-party website. River City Wealth Management is not responsible for and does not control, adopt, or endorse any content contained on any third-party website. The information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. Past performance is not indicative of future results.