NEI Monthly Market Insights: August 2023

Sep 18, 2023

Markets cool off in August

The end of July marked the peak for the S&P 500 so far this year, as the steady market uptrend that began in mid March started to retreat as soon as the August began. Following a 20% S&P 500 Index return in the first seven months of the year, the index fell -1.77% in August. Rising yields and uncertainty surrounding the path of China’s economic recovery were chief concerns among investor in recent weeks, which contributed to a volatile month in global markets. Global stocks sold off through the month with the MSCI All Country World Index declining 2.96% over the month. Developed markets outperformed emerging markets, which lost 3.54% in US dollar terms. Fixed income markets also fell in August as yields rose. Yields on the 10-year US Treasury increased by 15 basis points (bps), to 4.1%.

The NEI perspective

Long bond yields have steadily pushed higher over the past few months even as inflation in the U.S. has fallen from around 9% to just above 3% over the last year. The yield on the 10-year Treasury continued to move up in August, reflecting an ongoing reassessment of the long-run neutral rate of interest.

Investors took profits on the back of stronger than expected Q2 earnings and drove the market lower in August. Price reaction in the few days following positive earnings surprises generally didn’t reward the companies that beat consensus, as earnings outlook and rising long yields weighed on investor sentiment.

Global growth expected to slow as recent data revealed that consumer and business loans weakened and that banks anticipate the ongoing tightening of lending standards to continue in the second half. Plus personal savings rates in the U.S. continue to fall as credit card and auto loan delinquencies are beginning to rise.

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