Market Update: October 17, 2023
Economic data for the week included producer price inflation decelerating further on a year-over-year basis, while consumer prices remained somewhat sticky. Consumer sentiment also fell back, with higher inflation expectations.
Equities rose in the U.S. but were little changed overall in foreign markets. Bonds fared positively, as interest rates came back down from highs as investors sought a bit of safety. Commodities rose due to higher prices for crude oil and gold, related to geopolitical concerns in Israel and the Middle East.
U.S. stocks began on a weak note, as the prior weekend’s Israeli/Gaza conflict brought up worries of greater regional instability (potentially including Iran), which has the potential of pressuring oil prices even higher. An escalation appeared to be passing financial threat, while a little-changed CPI report proved frustrating for stocks, although the S&P ended the week positively. Sectors were led by a sharp over-4% rise in energy, as well as utilities as interest rates fell back a bit; consumer discretionary, communications, and materials lagged with small declines.
Earnings season for Q3 has begun, with FactSet estimating little change on a year-over-year basis for the S&P 500. (To be exact, the expected change has improved from -0.3% to a positive 0.4%, based on expectations and the few companies that have reported.) Revenue growth is slower than average as well, with an expected gain of 1.9% for the quarter. By sector, earnings results remain quite divergent, ranging from the expected 20-30% gains in communications services and consumer discretionary; on the negative side, materials and energy earnings are expected to decline -22% and -38%, respectively. Of course, as the reporting season progresses, we could expect to see an evolution in these assumptions. Past this season, earnings growth for Q4 looks a bit more interesting, pointing to an 8% for the S&P, with revenue growth up 4%, with 2024 expectations even rosier than that. (Obviously, these appear to price in a reacceleration of growth, either avoiding or moving past a recession.)
Foreign stocks were positive on net in developed markets, with gains in the U.K. and Japan offset by declines in Europe. Japanese growth estimates were revised upward, while those for Europe were again pared back closer to recession-like levels. Emerging markets gained as well, with commodity-producing countries, such as Brazil gaining, while China saw declines—the latter with possible additional government stimulus forthcoming.
Despite the discussion above about recent strength in longer-term yields, bonds gained last week as interest rates declined. Treasury and investment-grade credit gains of about a percent each appeared to be somewhat related to geopolitical concerns. Foreign bonds, including emerging markets, also rose, albeit to a lesser degree due to a stronger U.S. dollar.
Commodities gained in several categories, led by energy and precious metals. Crude oil rose 5% last week to $88/barrel. During the week, the jump in oil prices was obviously tied to the Israel/Gaza conflict, where any sense of instability in the Middle East has brought on that response in recent decades, particularly if Iranian production were to be curtailed. Precious metals gold and silver also rose over 5% each, in keeping with geopolitical concerns historically.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.