Fourth Quarter 2023 Market & Economic Update

Hi Scott Nelson, Senior Wealth Manager with Boulay Financial Advisors with your mid-quarter market and economic update.

We start as we have for the past several quarters, by looking at inflation and interest rates.

After a steady year-long decline in inflation, we saw it bump up about a half percent during the summer months.  The Consumer Price Index reading in October reversed course once more falling a half percent to an annual inflation rate of 3.2%.  The primary factors was a significant decline in energy prices and a slowing of the growth rate of housing prices.  Fed Chairman Powell reiterated in early November that while the Fed is committed to getting inflation down to around 2%, it will be likely be a gradual process. 

After raising the federal funds interest rate 11 times between March of 2022 and July of 2023, the Fed now appears to be holding off on further hikes to see how the economy reacts to one of the fastest series of rate hikes on record.  One sector that has definitely felt the interest rate rise is housing. Existing home sales dropped to levels last seen in 2010, as the average 30-year mortgage rates hit a 20-year high of 7.63% in October.

Looking next at the U.S. economy and the employment situation.

The economy grew an impressive 4.9% on an annual basis in the 3^rd quarter due to a combination of strong consumer spending and businesses spending to restock shelves.  Higher capital investment by businesses as well as increased government spending also contributed. Economists see the jump in growth as an exception and expect 4^th quarter GDP growth to return to levels more in line with what we have seen over the past several quarters. 

After spending 17 months between 3.4% and 3.7%, the unemployment rate has inched up slightly in the past couple months to 3.9%. 

Despite the uptick in the unemployment rate, the job market remains very tight.  As the chart shows, since June of 2021, the number of job openings has exceeded the number of job seekers.  In September, there were an estimated 3 million more job openings than people actively looking for work.

Now looking at the stock and bond markets.

The federal reserve’s pause in rate hikes and the continued strong economy has been good news for the US stock market.  The market is off to a strong start to the 4^th quarter up over 6% and is now up nearly 20% for the year per the Morningstar US Market index.  Growth stocks have recovered from their summer doldrums and are now up over 6.8% for the quarter.  International stocks are also experiencing a good quarter up 3.9% per the Morningstar Global Markets ex-US Index.  As they have all year, developed country stock markets continue to outperform those of emerging markets.

Bond market participants are showing optimism that the Federal Reserve pause in raising interest rates turns into a permanent one.  Overall, the US bond market is up 1.6% for the quarter and up four tenths of a percent for the year as measured by the Morningstar US Core Bond index.  The strong economy led to returns of over 2% for both investment-grade and high-yield corporate bonds in the fourth quarter.

There is your update for the fourth quarter of 2023. As always, if you have any questions about the topics covered in the video, reach out to your Boulay financial advisor.  To learn more about Boulay, please email us at learnmore@Boulaygroup.com.