September 2022 Financial Market Update
A tale of two markets and a look ahead
As we settle into September, we look back and see that August was a tale of two markets, split down the middle by the annual Jackson Hole Symposium. The first two weeks of August were a strong[i] showing for major U.S. stock market indexes, but Federal Reserve commentary from the Jackson Hole Symposium[ii] had a chilling effect.
Overall, for the month of August, the S&P 500 declined by 4.24%[iii], the Nasdaq 100 shed 5.22%[iv], and the Dow Jones Industrial Average decreased by 4.06%[v].
Fed & Inflation Reduction
Consistent chatter remains around reducing inflation along with the timeline and level of Fed aggression in doing so. Although there was no Fed meeting in August, there was the yearly Jackson Hole Symposium, and it showed that Federal Reserve Chair Jerome Powell is on an aggressive mission[vi].
The rustic location of this annual symposium was chosen based on a previous Fed chairman’s love of fly fishing and somehow stuck. This year’s topic was “Reassessing Constraints on the Economy and Policy” which no doubt gave attendees a good deal to discuss.
In the meeting of central bankers from around the world, Powell indicated continued vigilance in conquering inflation and used several key phrases that got the market’s attention. Specifically, Powell mentioned that the Fed will “use our tools forcefully” and “for some time”–and that these are some of the “unfortunate costs of reducing inflation[vii].”
Stock Market Reaction
Following the Fed commentary, the takeaway for U.S. equities seemed to be that the Fed’s rate hike agenda may last for an extended period and that higher rates are even more likely as the inflation battle continues.
Inflation metrics released in August showed Consumer Price Index (CPI) unchanged in July[viii] but still higher by 8.5% year-over-year.
Bond Yields Rise
When interest rates increase, bond prices decrease, and bond yields rise. Unsurprisingly then, the benchmark 10-year note yield[ix] had a whopper of a month during August, settling at 3.132% on the final day of trade for the month, up from July’s monthly settlement of 2.641%. Shorter-duration interest rates[x], including 5-year and 2-year notes, also rose in August–good news for savers.
While interest rates have risen more sharply in 2022 versus recent years, it’s wise to keep in mind that 10-year note yields have been much higher in the past, impacting the time’s mortgage rates. In fact, 30-year mortgage rates exceeded 17%[xi] in 1981 and 1982.
Nobody knows how high rates will go during this cycle, but it’s always good to have a basis for comparison relative to the country’s last inflationary period. Since no one has a crystal ball to see into the future, no one can say if now or later will be a better time to buy a home. The currently high interest rate for a mortgage may seem low in coming months, we don’t know.
The overall employment picture remains healthy, with the most recent non-farm payrolls report showing 315,000 jobs created in August, just under the Dow Jones estimate of 318,000[xii].
Unemployment, however, increased in August, climbing to 3.7% from 3.5%. There’s talk this could be attributed to more Americans entering the labor force and looking for work.
The good news is that more Americans seeking employment provides an optimal backdrop for continued rate hikes, given the Fed’s dual mandate for maximum labor participation and price stability.
Oil Prices Quiet
It’s been a quiet summer for crude oil prices, and that’s clear at the gas pump. Labor Day weekend drivers surely appreciated it, with the U.S. national average price per gallon[xiii] standing at $3.779 as of Tuesday afternoon.
However, with OPEC+ announcing a small cut[xiv] in oil production on recently, prices could rise again. It may be a good time to fill’er up!
Fall & The Fed
As fall approaches, attention will turn to the September Fed meeting[xv]. Another rate hike is widely expected at the Fed meeting on September 20-21. As of September 6, there’s a 26% chance of a 50 basis point hike and a 74% chance of a 75 basis point hike, per the CME FedWatch Tool[xvi].
As always, if you have questions or would like to review your financial plan you can book an appointment with us. We are here to help.
[i] Subin, S. (2022, August 16). Cnbc.com. Dow closes 200 points higher on Tuesday for fifth day of gains, buoyed by Walmart and Home Depot. [Online] Available at: Dow closes 200 points higher on Tuesday for fifth day of gains, buoyed by Walmart and Home Depot (cnbc.com).
[ii] Irwin, N. (2022, August 25). Axios.com. A beginner’s guide to the Fed’s big Jackson Hole conference. [Online] Available at: Everything you need to know about the Fed’s Jackson Hole conference (axios.com)
[iii] Silverblatt, H. (2022, September 2). Spglobal.com. U.S. Equities Market Attributes August 2022. [Online] Available at: U.S. Equities Market Attributes August 2022 – Commentary | S&P Dow Jones Indices (spglobal.com)
[iv] (2022, September 6). Investing.com. Nasdaq 100 (NDX). [Online] Available at: Nasdaq 100 Historical Rates (NDX) – Investing.com
[v] Silverblatt, H. (2022, September 2). Spglobal.com. U.S. Equities Market Attributes August 2022. [Online] Available at: U.S. Equities Market Attributes August 2022 – Commentary | S&P Dow Jones Indices (spglobal.com)
[vi] Holmes, F. (2022, September 2). Advisorperspectives.com. Fed Aggression and Upcoming Midterm Elections Add to September Jitters. [Online] Available on: Fed Aggression and Upcoming Midterm Elections Add to September Jitters – U.S. Global Investors – Commentaries – Advisor Perspectives
[vii] (2022, August 26). Federalreserve.gov. Speech: Monetary Policy and Price Stability. [Online] Available at: Speech by Chair Powell on monetary policy and price stability – Federal Reserve Board
[viii] (2022, August 15). Bls.gov. TED: The Economics Daily. [Online] Available at: Consumer Price Index unchanged over the month, up 8.5 percent over the year, in July 2022 : The Economics Daily: U.S. Bureau of Labor Statistics (bls.gov)
[ix] (2022). Cnbc.com. U.S. 10 Year Treasury. [Online] Available at: US10Y: 3.298% -0.042 (0.00%) (cnbc.com)
[x] Chen, M. (2022, September 2). Efttrends.com. Investors Turned to Short-Term Bond EFTs in Face of More Fed Rate Hikes. [Online] Available at: Investors Turned to Short-Term Bond ETFs in Face of More Fed Rate Hikes | ETF Trends
[xi] (2022, September 1). Fred.stlouisfed.org. 30-Year Fixed Rate Mortgage Average in the United States. [Online] Available at: 30-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US) | FRED | St. Louis Fed (stlouisfed.org)
[xii] Cox, J. (2022, September 2). Cnbc.com. Payrolls rose 315,000 in August as companies keep hiring. [Online] Available at: August 2022 jobs report: (cnbc.com)
[xiii] (2022). Gasprices.aaa.com. National Average Gas Prices. [Online] Available at: AAA Gas Prices
[xiv]Meredith, S. (2022, September 5). Cnbc.com. Oil producer group OPEC+ surprises energy markets with a small production cut.[Online] Available at: Oil: OPEC+ surprises energy markets with a small production cut (cnbc.com)
[xv] Saphir, A. (2022, September 2). Reuters.com. Fed seen sticking to interest rate hikes even as unemployment rises. [Online] Available at: Fed seen sticking to interest rate hikes even as unemployment rises | Reuters
[xvi] (2022). Cmegroup.com. CME FedWatch Tool. [Online] Available at: Countdown to FOMC: CME FedWatch Tool (cmegroup.com)
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