CIO Monthly Observations - August 2023
Markets in Review
Stock markets had another good month in July, with the S&P 500 gaining 3.1% and improving its year-to-date performance to 19.5%. The MSCI All Country World index also gained, up 3.6% for the month, and increased its year-to-date return to 16.8%. However, the Bloomberg BarCap U.S. Aggregate Bond index fell, losing -0.1% during July and its year-to-date return is now down to 2.0%.
Although the Fed resumed raising interest rates again this month, after pausing their rate hikes in June, it wasn’t enough to stop stock markets from moving higher. China – an economy that was expected to lead the way in 2023 – has been slow to rebound from the Covid lockdowns, but low unemployment in the US, a surprisingly strong consumer and steadily decreasing inflation has buoyed stock markets nevertheless.
The Federal Reserve raised interest rates for an 11th time China’s economy has been sluggish due to property woes The Dow Jones had its best winning streak in 35 years
News in Review
Below are some stories that caught our eye this past month. To learn more, follow the links to the full article.
The Fed raised rates another 0.25% in July, after leaving rates unchanged at the previous meeting. The upper bound for the Fed Funds rate is now 5.5% -- the highest it’s been in 22 years – and it appears that inflation continues to fall (although it is still averaging around 3.0%). The Fed governors are divided on what to do next, with many officials wary of taking the foot off the brake too soon (e.g. stop increasing interest rates), while others are concerned that they have already done too much and economic growth will suffer as a result.
China’s economy isn’t doing nearly as well as most people expected it would this year, despite fully reopening their economy. One of the reasons economic growth is so sluggish is a housing market downturn, which has also put pressure on their bond markets. The government, by way of state-run newspapers, has been signaling that it will adopt more property supportive policies and other economic measures to boost business confidence.
The Dow Jones Industrial Average rose for 13 days in a row, matching a record that was set in the late 1980’s. Part of the reason for the streak is the realization that a recession isn’t nearly as likely (or as imminent) this year as many believed as recently as 6 months ago. The inflation rate has continued to come down, which puts less pressure on the Fed to keep raising interest rates, and the unemployment rate has stayed low, all of which has been positive for stock prices.
The canned ham, popularly known as SPAM, was introduced in 1937 by Hormel Foods, and has had its current name since 1945. Some people love it, and others hate it – it’s been a punchline for many years – but no one seems to know what the name means. Apparently, it is short for “spiced ham” and the name came during a naming contest close to 80 years ago. Originally introduced in the Great Depression, it became extremely popular in World War 2 because it could be shopped anywhere in the world, and amazingly is still being sold today.
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S&P 500 INDEX: The Standard & Poor's 500 Index is an unmanaged, capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
NASDAQ 100 INDEX: The Nasdaq 100 Index is an unmanaged, capitalization-weighted index of the largest 100 non- financial stocks traded on the Nasdaq market. Unlike the S&P 500 it does not represent all major industries and may be more volatile than more broadly constructed indices.
MSCI ACWI INDEX: The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 24 emerging markets (EM) countries. With 2,495 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index: The Bloomberg U.S. Aggregate Bond Index is a broad-based index of the U.S. investment-grade, fixed-rate bond market, including both government-related and corporate securities and mortgage- backed and asset-backed securities.
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