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The positive momentum of the first two quarters of the year did not carry over to the third quarter. Inflation continued to prove stubborn throughout the third quarter, moderating somewhat, but not enough to curb the Federal Reserve's hawkish monetary policy. Crude oil and gasoline prices soared during the summer. Job gains, while steady, declined throughout the third quarter. The housing sector slowed on rising mortgage rates and dwindling inventory. The third quarter saw most of the market sectors decline from the second quarter. Utilities, real estate, information technology, consumer staples, and consumer discretionary fell the furthest, while energy rose by more than 16.0%.
On the last day of the third quarter, each of the benchmark indexes lost value compared to their second quarter performances. The small caps of the Russell 2000, sensitive to current economic changes, fell the furthest, followed by the Nasdaq, the S&P 500, the Global Dow, and the Dow. Rising interest rates have impacted bond prices, yields, and the U.S. dollar. Ten-year Government bond yields rose in the third quarter, reaching the highest level since 2007, as long-term bond prices slid lower.
The U.S. dollar also rose in the third quarter, hitting its highest level since last November. With rising bond yields, foreign investors buy dollars to buy bonds, which helps contribute to the increasing dollar. The increase in the Federal Funds rate pushed mortgage rates to 7.31% on the benchmark 30-year home loan, the highest rate in 23 years. However, unlike 2000, house prices are generally rising alongside mortgage rates, as demand has outpaced available inventory. Oil prices, near $91.00 per barrel, rose nearly 30.0% since June, as Saudi Arabia and Russia, the world's second and third largest oil exporters, extended voluntary restrictions on their production. The retail price for regular gasoline was $3.837 per gallon on September 25, $0.024 above the August 28 price and $0.027 higher than the price on June 26. Regular retail gas prices increased $0.126 from a year ago. Gold prices declined in the third quarter, nearing a seven-month low. July began the quarter with stocks posting notable gains from the previous month. Economic indicators offered signs that inflation was moderating, which helped equities advance. The S&P 500 notched its fifth consecutive monthly gain as all 11 market sectors finished the month higher. Overall, small caps outperformed large caps, with the Russell 2000 (6.1%) leading the benchmark indexes listed here. Energy stocks jumped higher on the heels of rising crude oil prices, which hit a three-month high. Ten-year Treasury yields rose above 4.00% during the month, only to retreat somewhat to 3.95% by the end of July. According to data released in July, both the Consumer Price Index (CPI) and the personal consumption expenditures (PCE) price index rose 0.2% in June compared to a 0.3% advance in May. Adding further evidence of potentially waning inflation, the PCE price index was up 4.1% from June 2022, the lowest 12-month reading since September 2021. Despite slowing inflation, the Federal Reserve opted to hike interest rate 25.0 basis points at the end of July, although there were expectations that the Fed may end interest rate increases. The initial estimate of gross domestic product showed the economy expanded at an annualized rate of 2.4% in the second quarter compared to a 2.0% advance in the first quarter. Consumer spending in the second quarter slowed to 1.6%, down from 4.2% in the first quarter.
Employment began to show signs of slowing as job gains in July (157,000) were below the June total (187,000). Stocks tumbled in August. Each of the benchmark indexes listed here lost value, with the S&P 500 suffering a losing month for the first time since February. The small caps of the Russell 2000 declined more than 5.0%, while the Nasdaq, the Dow, the Global Dow, and the S&P 500 slid more than 2.0%. Long-term bond prices declined, driving yields higher. Ten-year Treasury yields ended the month at 4.1%, up nearly 14.0 basis points from July. Several economic indicators released in August showed favorable results. Industrial production rose 1.0% in July after declining in both May and June. Consumer spending increased 0.8%, while retail sales jumped 0.7%.
The PCE price index and the CPI rose 0.2%. While sales of existing homes declined, new home sales rose to their highest level since early 2022 despite soaring mortgage rates. Unfortunately, investors seemed to view August's moderately favorable economic news as a sign that the Federal Reserve would maintain its aggressive monetary policy. The result was a move away from stocks. With the exception of energy, the remaining market sectors declined. Crude oil prices rose more than 2.0%, as production cuts from Saudi Arabia and Russia drove prices higher. September continued the bear run for stocks. Each of the benchmark indexes listed here fell between 3.0% and more than 6.0%. Inflationary pressures showed signs of cooling, with core prices for the PCE price index and the CPI decreasing for the 12-months ended in August. The Federal Reserve elected not to increase interest rates in June, opting, instead, to step back and assess additional information and its implications for monetary policy. Gross domestic product advanced at an annualized rate of 2.1%, according to the third and final estimate. Crude oil prices continued to increase as did the yield on 10-year Treasuries. Gold prices declined more than 5.0%.
|MARKET/INDEX||2022 CLOSE||AS OF 9/29||MONTHLY CHANGE||QUARTERLY CHANGE||YTD CHANGE|
|FED. FUNDS||4.25%-4.50%||5.25%-5.50%||0 bps||25 bps||100 bps|
|10-YEAR TREASURIES||3.87%||4.57%||48 bps||76 bps||70 bps|
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
It appeared that the start of the fourth quarter might be marred by a government shutdown. However, U.S. lawmakers reached a short-term resolution right before the October 1 deadline. October will begin with autoworkers on strike and student loan payments resuming after a pandemic-related pause. Otherwise, investors will continue to focus on inflation data and the Federal Reserve's response during the last three months of the year. Concerns over slowing economic activity, both here and globally, also will influence the market going forward.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market cap weighted index composed of the common stocks of 500 largest, publicly traded companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indexes listed are unmanaged and are not available for direct investment.
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