Third Quarter 2023 Market & Economic Update

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

Let’s start by looking at inflation and interest rates. The latest Consumer Price Index data for July showed a modest two-tenths of a percent increase in inflation. That broke the 12-month string of successive monthly decreases during which the CPI fell from over 9% in June of 2022 to 3.2% in July of 2023. While the overall inflation data is encouraging, the Federal Reserve still found reason to raise its Federal Funds interest rate an additional quarter of a percent in June. That was the third consecutive quarter of a percent increase in 2023.

Looking next at the U.S. economy and employment situation, consumers found many reasons to shop last month as retail sales were up seven-tenths of a percent in July compared to June—making it the fourth consecutive month of growing sales. No doubt this stretch of strong retail sales is influenced by the low unemployment rate which fell a tenth of a percent to 3.5% in July. Since March of 2022, the unemployment rate has remained in the narrow range between 3.4% and 3.7%.

Despite the good economic news, the housing market continues to have issues. Sales of existing homes sales were down 23% in the first half of the year compared to 2022. The slowdown in homes sales is all about inventory and not price, as the median price of an existing home sold in June exceeded $410,000 according to the National Association of Realtors. The rise in interest rates is making homeowners reluctant to sell and give up their low mortgage rates, which has pushed the inventory of available homes to the lowest levels since the association started keeping track nearly 25 years ago. 

The supply and demand mismatch has resulted in homes only being on the market an average of 18 days in June and one-third of homes sold for more than the listed price. As a result of the slump in sales of existing homes, new home sales now account for nearly one third of all single-family homes being sold in 2023. 

Now looking at the stock and bond markets. As of mid-August, the U.S. stock market is flat for the third quarter but remains up about 16.5% for the year according to the Morningstar US Market index. Growth stocks have given back approximately 1.9% in the third quarter after rallying strongly off of 2022’s lows, with a 25.6% gain for the year. Value stocks are in positive territory for the quarter and have managed to gain over 5% year to date. After a solid start of the year, international stocks have also stalled out in the third quarter with both the developed and emerging stock markets indices down approximately 1.2%. 

As fears of a recession have faded over the past several months, bonds have been giving back the solid gains they achieved at the beginning of the 2023. As of mid-August, the bond market is down approximately 1.5% for the quarter and just barely in positive territory for the year according to the Morningstar Core Bond index. The U.S. treasury and corporate bond indices are down nearly the same amount for the quarter. The strength of the U.S. economy, though, has helped high-yield bonds remain positive for the quarter and the Morningstar high-yield index remains up 6.4% for the year. 

So that is your update for the third 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 check out our website or email us at learnmore@boulaygroup.com.