Higher treasury yields, geopolitical risk, and a strong U.S. consumer dominated the headlines in an eventful trading week.
Relentless U.S. Consumers
The resilience of the U.S. consumer has proven impressive. Retail sales rose 0.7% in September versus August–exceeding the Dow Jones estimates for a 0.3% rise. Retail sales data figures are not adjusted for inflation.
Miscellaneous stores led the way with an increase of 3% over the month. Many folks will ask, ”What is a miscellaneous store?” It seems many Americans are spending their money in a more value-oriented fashion–at retailers like thrift stores offering used merchandise at discount prices.
Impacts on the Fed
The Retail Sales report is of great importance, as it can contribute to the future of the Fed’s monetary policy. Markets are currently pricing in a Fed that is done hiking rates during this cycle (though this can change). With the consumer being so strong, however, the Fed’s job can become more challenging.
Again, the Retail Sales data is not adjusted for inflation–so a rise in sales could potentially be partially offset by higher prices.
Credit card balances continue to climb to record levels too, topping $1 Trillion in the most recent Household Debt and Credit Report issued by the Federal Reserve Bank of New York. That is Q2 data, and we should get Q3 data over the next month.
10-year Note Yields Rise
Equity markets were hanging on to the moves of 10-year treasury yields last week, seemingly paying attention to each change or tick with high sensitivity.
The benchmark yield touched a high of just under 5% last week, peaking near 4.993%, and settling last week near 4.923%.
Some treasury market analysts have cited a supply imbalance in the treasury markets. Given the current state of the U.S. government deficit, investors (countries, institutional investors, individuals, etc) are demanding a higher rate to take on the U.S. debt. Notably, households are taking on U.S. debt (buying treasury notes and other products) at an increasing rate.
FOMC speeches were plentiful last week. The highlight was Fed Chair Powell’s prepared remarks at the Economic Club of New York.
Notable takeaways from Chair Powell’s luncheon remarks include, “Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal.”
You can catch the full Chair Powell speech here.
Uncertainty Pulls the Strings
Markets like clarity and certainty, and we have a healthy dose of the opposite right now. The Middle East, persistent inflation, unknown Fed policy, and rising bond yields are all factoring into the fear equation.
The “higher for longer” interest rate scenario seems to be holding up in recent months. Portfolio adjustments can often be wise and may potentially help an investor’s bottom line over time. Snap decisions, though, have the potential to hurt investors over time.
We are in a seasonally strong time of the year for U.S. equities, although many macro headwinds are fighting the trend. Should market volatility continue, remember that the most successful long-term investors are often fearless in nature.
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