Key Highlights
- The S&P 500® was down 4.87% in September, bringing its YTD return to 11.68%.
- The Dow Jones Industrial Average® decreased 3.50% for the month and was up 1.09% YTD.
- The S&P MidCap 400® posted -5.42% for the month, bringing its YTD return to 2.95%.
- The S&P SmallCap 600® was down 6.16% in September and had a YTD return of 0.54%.
MARKET SNAPSHOT
The S&P 500 continued, and increased, its downward trend in September, as the Fed’s “higher for longer” theme started to sink in, with equities readjusting to the new perceived environment. Housing data continued to show low demand but lower supply, as prices mostly held their high levels, even as mortgage rates continued to increase. Consumer spending concerns also increased, as “excess” savings (from the pandemic) were depleted, with consumers having to turn to increased charge card balances if they wished to continue their spending spree. Washington also has done its part for uncertainty, as the government was set for an Oct. 1, 2023, shutdown.
The S&P 500 posted its second month of broad declines (-4.87% in September and -1.77% in August) after five consecutive months of gains (cumulatively 15.59%). For the month, the index posted losses for 11 of its 20 trading days, with 10 of the 11 sectors down and breadth remaining negative (74 issues up for the month compared to 153 in August and 362 in July). Trading decreased 3% over August and was down 17% over September 2022.
The Dow Jones Industrial Average improved in September, as it beat the S&P 500 but still declined 3.50% (-3.42% with dividends). The Dow continued to significantly trail the S&P 500 YTD, up 1.09% (2.73% with dividends) compared with the S&P 500’s 11.68%. The variance is due to the weighting (price versus market value), which historically tracks well, but over shorter periods tends not to.
The Federal Deposit Insurance Company (FDIC) borrowed USD 50 billion from the Federal Reserve to finance the First Republic Bank transaction. U.S. bank deposits declined at an annualized rate of USD 871.6 billion for the first half of 2023 to USD 17.269 trillion, the first decline since the series started in 1994.
The U.S. national debt reached USD 33 trillion for the first time (for reference, the S&P 500’s market value is USD 36 trillion). Moody’s Investor Service warned that a government shutdown could hurt the U.S. government’s ‘AAA’ rating. Fitch recently reduced the U.S. to ‘AA+’ from ‘AAA’ and S&P Global Ratings did so in 2011. The U.S. 10-year Treasury traded at 4.68%, a level not seen since October 2007.
The U.S. Internal Revenue Service (IRS) will stop processing new refund requests for the COVID-19 Employee Retention Credit (ERC; with a business credit of up to USD 26,000 per employee covering March 2000 through December 2021) until at least 2024, as the IRS reported (along with major news organizations and agencies) major fraud issues, adding that it will review over 600,000 current requests (the ERC has 3.6 million requests) for the proceeds and credits. Refunds were at USD 29.6 billion in July 2023 (they reached USD 285 billion in April 2021).
Reports said Saudi Arabia’s Aramco was again considering a record offering of USD 50 billion. Saudi Arabia and Russia announced that they would continue their oil production cut of 1.3 million barrels per day through 2023 (1 million for Saudi Arabia and 300,000 for Russia); they had cut production in August and then extended it into September. The announcement was a surprise, as a one-month extension was expected, and it was more concerning because it showed coordination between Saudi Arabia and Russia.
The Bank of Canada met and held its interest rate unchanged at 5%, after increasing it 0.25% at each of the last two meetings (June and July). The European Central Bank increased interest rates by 0.25%, to 4.0%, its 10th consecutive increase, as it indicated that it may have reached its level. The Bank of England met and ended its run of 14 consecutive interest rate increases (from December 2021’s 0.1%), leaving the 5.25% rate unchanged (5-to-4 vote; 4 preferred a 0.25% increase). The Bank of Japan met and, as expected, kept its short-term interest rate low, at 0.1%.
