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Stock Market Losses Accelerate on Concerns About Long-term Interest Rates and The Global Economy…

Dumaine Investments Weekly Market Update – September 26, 2023

• US stocks traded down nearly 4% over the past week as the September market selloff accelerated. Appetite for equities appears to be subsiding after a 20% rally this year fueled by artificial intelligence euphoria. Behind the recent wave of pessimism is the resolve by the US Federal Reserve to keep interest rates higher for longer—creating pressure on already stretched market valuations. Adding fuel to the fire, this comes amid existing concerns about workers’ strikes, global economic woes, resilient core inflation, and the possibility of a government shutdown.

• The Fed may have kept rates on hold last week, but it managed to jolt markets into finally believing borrowing costs are going to stay higher for quite a while. As we have noted repeatedly in our newsletters and weekly posts this year, this is by far the most probable scenario, and appears almost unavoidable. Nevertheless, markets are only now beginning to recognize the real possibility of ‘higher rates for the longer term,’ and the consequences for the economy and equity valuations. In short, the market has been obsessed with when rate cuts will begin and how plentiful they will be in 2024. That appears to have been replaced by the abrupt realization that interest rate policy will remain restrictive for some time.

• Last week’s jobs data release showed a surprise decline in weekly jobless claims to 201,000 in August, the lowest since January. This number, well below expectations, suggests the labor market is still hot. After the Fed’s economic projections Wednesday showed interest rates staying higher for longer, the labor data further solidified that concept for investors.

• Moody’s Investors Service, the only remaining major credit grader to assign the US a top rating, has signaled that its confidence is wavering ahead of a potential government shutdown. The blunt warning by Moody’s follows a downgrade last month by Fitch which cited concerns over the nearly catastrophic US debt default that almost happened earlier this year.

DISCLAIMER: The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Investment decisions should be based on individual financial goals, risk tolerance, and consultation with a qualified financial professional.