2023 Q3 In Review - Integrity Wealth Advisors, Ventura & Ojai, California

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TOTAL RETURN 2023 Q3 + NEWSWORTHY EVENTS July 5 – The Fed’s June meeting minutes indicate more rate hikes are likely on the way July 26 – The Federal Reserve raised the federal funds rate to 5.50%, the highest level in 22 years August 8 – On Maui, a series of wildfires burned 17,000 acres of land, leaving at least 98 people dead and 31 others missing September 9 – a 6.9 magnitude earthquake strikes Marrakesh, killing at least 2,960 people July 12 – The Consumer Price Index (CPI) report showed that headline inflation was up 3.1% for the last year, the lowest reading since August 2021 August 1 – U.S. Treasury Bonds were downgraded from AAA to AA+ by ratings agency Fitch August 15 – The stock market fell following better than expected economic reports on consumer spending, suggesting sticker inflation and a more aggressive Fed September 15 – The United Auto Workers begin a strike against the three largest American automakers September 20 – The Federal Reserve decided to hold interest rates at 5.50% but notes than another 25 basis point raise was not off the table for the remainder of 2023 4% S&P 500 TOTAL RETURN MSCI ACWI EX USA TOTAL RETURN BARCLAYS US AGGREGATE TOTAL RETURN 3% 2% 1% 0% -1% -2% -3.27% -3% -3.23% -4% -3.68% July August September As of close 9/29/2023 12% S&P 500 TOTAL RETURN MSCI ACWI EX USA TOTAL RETURN BARCLAYS US AGGREGATE TOTAL RETURN Source: https://en.wikipedia.org/wiki/2023 11% 10.42%
A SURPRISINGLY RESILIENT ECONOMY DESPITE A HAWKISH FED 2023 Q3 IN REVIEW The financial markets faced significant challenges in the third quarter. Equities struggled as a bearish sentiment took hold in recent months. The initial momentum, driven by a disinflation narrative from October 2022 to July 2023, was overshadowed by less supportive storylines, leaving equities in a precarious position amidst the resilient economy. Despite efforts, inflation improvement remains elusive due to persistent wage stagnation. While U.S. consumers didn't cause the pandemic-related price surge, they are now demanding higher wages. This robust labor force is a reason why the Federal Reserve is cautious in easing its policies, hinting at a prolonged period of restrictive measures, which is impacting both equities and bonds. This tightening of financial conditions is happening in an economy that, at the moment, seems capable of absorbing it. Consumers are financially stable, employment markets are robust, corporate profits are rising, and fiscal policies are surprisingly pro-cyclical for this stage of expansion. Consequently, the rise in yields seems justified given the resilient economy and the hawkish stance of the Fed. While the threat of a recession looms in 2024, for now, the market's fate hangs on oil prices and the U.S. 10-year Treasury yield. Traditionally, interest rates would be at new lows during this expansion phase, stimulating the economy through refinancing and increased housing demand. However, investors are now grappling with a gradual reduction in liquidity, reflected in the narrowing gains across financial assets. Despite healthy nominal economic growth, the ongoing contraction of money and credit implies a limited shelf life for this prosperity. Investors remain skeptical about the soft-landing theory unless there's a significant change in the current scenario. The longer the economy stays resilient, the higher the chances of a harsher economic downturn. Real interest rates are higher, emphasizing the time value of money and marking a departure from the post-2008 era of easy money. Consequently, considering valuations is crucial in investment decisions. The era of pursuing growth at any cost is becoming increasingly difficult to justify. ECONOMIC CHARTS & NOTES CONSUMER SENTIMENT Consumer sentiment improved in Q3, reaching its highest level in nearly two years, although autoworker strikes and the government shutdown added uncertainty. Retail sales picked up as American shoppers stayed resilient. US Retail Sales Consumer Sentiment EMPLOYMENT The U.S. unemployment rate rose to 3.8% (its highest level since February 2022), a sign that the jobs market may be cooling. Job gains were better than expected in August, led by healthcare, but June/July figures were revised lower. Unemployment Rate NonFarm Payroll 34% 100 16% 2200 US Retail Sales % Chg 28% 22% 16% 10% 4% -2% -8% 90 80 70 60 Consumer Sentiment Unemployment Rate % 14% 12% 10% 8% 6% 4% -825 -3850 -6875 -9900 -12925 -15950 -18975 NonFarm Payroll -14% Jan '19 Jul '19 Jan '20 Jul '20 Jan '21 Jul '21 Jan '22 Jul '22 Jan '23 50 Jul '23 2% Jan ' 19 Jul '19 Jan '20 Jul '20 Jan '21 Jul '21 Jan '22 Jul '22 Jan '23 Jul ' 23 -22000 Source: University of Michigan Consumer Sentiment. Retail Sales - U.S. Census Bureau. Source: U.S. Bureau of Labor Statistics
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2023 Q3 In Review - Integrity Wealth Advisors, Ventura & Ojai, California

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