September 2023 in Review

by Daniel Zeigler, CFP®, CMFC®, Senior Portfolio Manager

Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager. Today I wanted to spend a few minutes to give you an update on the markets for the month of September.

Market Returns for September:

The summer stock market rally has faded as investors begin to price in future uncertainty. Investors are now worried about higher rates for longer, a government shutdown looming, student loan payments resuming in October, UAW strike, and a higher U.S Dollar and oil prices approaching $100 a barrel. All these uncertainties alone may not be troublesome, however, when you add everything together, the market has taken note and is pricing in some of the future uncertainty.

For the month of September, the S&P 500 was down about 5%, however, the index still remains up about 11.7% for the year. The technology-heavy weighted NASDAQ was down close to 6% for the month. Bonds were also down for the month, with the Barclay’s US Aggregate Bond Index down close to 1.75%. The yield on the 10-year U.S. Treasury note continued to move higher in September with the 10-year Treasury close to 4.6%.

Investors are keeping a close eye on the possibility of a government shutdown as historically stock markets do not like government shutdowns and the uncertainty they cause on the economy and big companies. In fact, in the lead-up to the last seven government shutdowns dating back to 1976, the median S&P 500 decline was 10%. Moody’s Investors Service warned that a government shutdown could also hurt the U.S. credit rating.

The third revision to the 2nd quarter U.S. GDP growth was unrevised at 2.1% as the economy continues to show resilience. The report did show a downgrade to growth in consumer spending to a lackluster 0.8% rate from the previous reported 1.7% pace, however, this was offset by an upward revision to business investment.

Federal Reserve:

At the Fed’s meeting in September, the committee left policy rates unchanged at the current range of 5.25-5.50%. The committee maintained its hawkish bias, noting the ‘solid pace’ of economic growth and that ‘inflation remains elevated.’ The committee’s dot plot showed they are expecting to hike once more before the end of the year and only cut by 50 basis points in 2024. Markets seem to be beginning to price in the narrative for a higher interest rates for longer. The market did get some positive news at the end of September, as the Fed’s favorite inflation indicator rose by 0.1% for the month, lower than the expected 0.2% increase and the index was up 3.9% compared to last year, as expected.

Outlook:

The market currently has a lot to digest as investors typically dislike uncertainties. The Federal Reserve interest rate policy, inflation, and the health of the consumer will be top of mind as we head into the 4th quarter. 3rd quarter corporate earnings will begin reporting soon as well, and analysts are expecting virtually no growth, however, the companies’ outlooks will likely dictate the market’s direction. As always, thanks for joining me for this month’s market update. Please be on the lookout for our 4th quarter market newsletter.