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Market Takes Another Leg Down as Treasury Yields Climb…

Dumaine Investments Weekly Market Update – October 3, 2023

• US stocks continued to trade lower over the past week amid growing concerns about rates staying higher for longer, inflated tech stock valuations, and a decidedly mixed global economic picture. While a last-minute stopgap measure over the weekend prevented an imminent government shutdown, there remains plenty of room for doubt about an ultimate resolution to the budget showdown. The existing funding bill kicked the can down the road for only 45 days. Given the current state of division in congress, there is still a high probability of a government shutdown before year-end.

• The Federal Reserve’s message is finally being heard loud and clear by Wall Street. As discussed last week, the central bank was finally successful in shifting the focus toward higher-for-longer interest rates at its September meeting. Markets appear to have given up anticipating imminent rate cuts, and Treasury yields have shifted higher accordingly. The yield on the 10-year Treasury note reached 4.78% Tuesday, its highest level since 2007. The timing of the move—on the first two days of the fourth quarter and with little news—means last week’s rising yields cannot be attributed to end-of-quarter positioning. Rather, the ongoing change in interest rates appears to be a material market shift that is gaining momentum.

• While historically October has been a sanguine month for stocks, we remain concerned about risks on the horizon. The major risk factors that markets faced in September—sticky inflation, elevated oil prices, higher-for-longer rates—are all still on the table, and many trends in the global economy continue to worsen. We continue to maintain an underweight to stocks, and to be defensively positioned within the asset class—favoring lower beta sectors with less cyclical exposure. On the fixed income front, we are beginning to lengthen our bond maturities at the margin.

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.