October 17, 2023
Third Quarter Highlights
- The positive momentum in global equity markets continued in July. However, markets were pressured in August and September. Sentiment shifted away from a soft landing scenario to worries about an economic and profit slowdown from tight monetary conditions as major central banks pointed to higher interest rates for longer than previously expected to combat higher than target inflation rates. Also, the artificial intelligence (AI) rally eased.
- Bond yields surged, and prices fell due to the “higher for longer” expectations. S. Treasury bond yields hit 15+ year highs. A high level of new issuance of U.S. government bonds also pushed rates up.
- Oil prices increased sharply due to production cuts by Saudi Arabia and Russia making the fight against inflation more difficult. The price of West Texas Intermediate crude oil rose almost 30% during the quarter. The price of gold fell as the U.S. dollar rose.
Overview of the Economy
- Earnings reports for the second quarter were better than expected with a majority of companies beating analyst forecasts but some, particularly retailers, warned about rising costs and shifting consumer spending trends.
- The U.S. economy showed resilience with a 2.1% annualized growth rate in the second quarter due in large part to a jump in business investment. The labor market remains tight with 1.4 jobs open for every unemployed person and new unemployment claims hovering near historical lows which helped retail sales grow more than expected. However, the housing market is slowing due to high prices and the highest mortgage rates in 20 years.
- Surveys showed weak manufacturing activity around the world but services activity is still in expansion.
- The Federal Reserve Open Market Committee (Fed) raised its policy rate in July but paused in September and adjusted its projections showing “higher for longer” interest rates. Actions by other central banks were mixed.