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Market Recap – October 2, 2023

Keel Point

October 2, 2023

The Fed’s “higher for longer” message, and higher longer-term interest rates last week, almost made us miss the good news around GDP growth and declining inflation. 

  • August Core Personal Consumption Expenditures inflation index reported last Friday was up only 0.1% in August and only 2.2% annualized rate over the past three months. Its 3.9% increase from a year ago is also an improvement from the prior month. 
  • Q2 real GDP growth’s third estimate last Thursday was 2.1% (annualized rate), and Q3 real consumption has likely accelerated to 3.5% annualized — up from 0.8% in Q2.
  • 10-year U.S. Treasury rates have continued to rise, closing last week at 4.6%, which is up from 3.9% at the beginning of the year.
  • Higher and rising Treasury borrowing requirements are raising Treasury interest rates even with inflation declining, economic growth slowing, and the Fed holding its rates steady.

 

The likelihood of a “soft landing,” i.e., no recession over the next 12 months, is declining because of the higher interest rates and weakening consumer spending.

  • Robust consumer spending, which has been key to GDP growth, is slowing. Inflation-adjusted personal consumption expenditures were up only 0.1% in August after rising 0.3% and 0.6% in June and July, respectively.
  • Americans outside the wealthiest 20% of the country “have run out of extra savings and now have less cash on hand than they did when the pandemic began.” (Axios/Federal Reserve)
  • Oil prices are increasing from a June 11 low of $74 per barrel to over $95 per barrel and easily could top $100. OPEC + extended their production cuts until year-end, and U.S. disincentives for investing in oil, gas & refining mean these prices could continue to rise. 
  • Student loan repayments restarted yesterday, October 1, for 44 million borrowers. The average monthly payment is $393, reducing GDP by 0.1% in 2023 and by 0.3% in 2024. The biggest negative impact will be on retail spending.
  • Mortgage rates nearing 7.5% are raising home ownership costs and damping homebuying and home building demand which have ripple effects through the economy.

 

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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