The Dow (-1.3%), NASDAQ (+0.1%) and S&P 500 (-0.7%) finished mixed last week, but mostly lower. Similarly, taxable and tax-free municipal bonds were also down 1% or more for the week. The 10-year Treasury yield closed up 0.13% to 4.57%. Interest rates have crept up to levels not seen since 2000, and that is also being seen with mortgage rates that are well above 7%. Last week also reflected the end of the month and quarter, and neither was good for the markets. Due to weak months of August and September, stocks and bonds were both down 3% - 5% for the quarter. Thank goodness the quarter is finally over.
Last week, two inflation-related data were reported and provided conflicting results. Initial jobless claims remained low, suggesting a robust labor market, but giving more concerns for inflation and the need for the Fed to continue raising interest rates. However, the Fed-favored gauge of inflation, Personal Consumption Expenditures (PCE), was reported for August to have fallen below 4% for the first time since November 2020. While nowhere close to the Fed target of 2%, the numbers of showing signs of a downward trend. That could support the Fed halting interest rate hikes.
The markets drivers right now seem to be centered in Washington DC. Fortunately, during the 11th hour (literally), a bill was signed to thwart a government shutdown, but that is only a 45-day solution. With concerns that the Fed may raise interest rates again at its next meeting in four weeks, and that Congress will need to deal with budget issues again in six weeks, we can expect some volatility for the month of October. The Fed (and investors) will be paying close attention to key economic data being released this week, especially the September labor report being released on Friday. Let’s also consider that we will be entering the quarterly corporate earnings season in about three weeks, and there is a lot of speculation regarding how corporations have done, as an unusually high percentage of companies lowered their earnings expectations for the quarter. In other words, October is poised to be a very interesting month for the markets.
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