The US economy grew well above trend in Q3 2023, with a 4.9% increase in Gross Domestic Product (GDP), marking the fastest growth in nearly two years. The primary factor driving this growth was a 4% rise in consumer spending as a healthy US job market continues to support strong household spending. Even with robust economic growth, inflationary trends continued to ease and underlying inflation measures were lower. Year over year US Core Personal Consumption Expenditures (PCE) decelerated from 3.8% in August to 3.7% in September. The Federal Reserve will carefully consider these factors and others as it continues to evaluate the future path of monetary policy.
Notwithstanding the news on Thursday morning of 4.9% GDP growth in Q3, US Treasury yields moved lower for the week. The 2-year US Treasury edged down by 0.05% to 5.03%, the 5-year declined by 0.08% to 4.78%, and the 10-year fell by 0.07% to 4.85% as of this Friday morning. The yield curve inversion between the 2-year and 10-year Treasuries remained relatively stable at 0.18%. Stock markets were weaker this week, with the S&P 500 down 1.9% as of this Friday morning. Financial markets continue to absorb a large number of earnings reports, with the majority showing solid results in Q3. However, the stock market has been weighed down by the move higher in long-term interest rates and the uncertainty around geopolitical events and their potential impact on the global economy, which is likely to persist for some time.
According to the National Association of Realtors, US pending home sales in September increased by 1.1%, but the overall level of contracts is back to the lowest level since 2001. High mortgage rates have made financing homes challenging. Freddie Mac reported that the average mortgage rate for the week of October 26th increased to 7.79%. Limited inventory has also negatively impacted affordability as existing homeowners are reluctant to swap their current homes and reset their mortgages at a higher rate. However, new home sales in September surged by 12.3% as builders provided financial incentives to attract buyers and counteract the impact of high interest rates, while sacrificing their own margins.
Next week, market participants will again turn their attention to the Federal Reserve and the Federal Open Market Committee (FOMC) meeting on November 1st. The Chandler team expects the FOMC to hold rates steady at this meeting, as inflationary indicators continue to trend towards an easing of inflationary pressures. We believe the FOMC is also likely to communicate their intent to maintain optionality with any future changes to monetary policy based on their interpretation of incoming economic data. Given recent market volatility and geopolitical risks, Chandler recommends maintaining investment strategies at or near benchmark duration and staying up in quality.
Next Week:
Dallas Fed Manufacturing Activity, S&P/Case-Shiller U.S. National Home Price Index , MNI Chicago Purchasing manager index, Conference Board Consumer Confidence Index, Dallas Fed Services Activity, ADP Employment Change, S&P Global US Manufacturing Purchasing Managers Index, JOLTS Job Openings, Institute of Supply Management Manufacturing Index, Federal Open Marekt Committee Meeting (FOMC), Wards Total Vehicle Sales, Factory Orders, Durable Goods Orders, Employment Situation Summary, S&P Global US Services Purchasing Managers Index, S&P Global US Composite Purchasing Manager Index, Institute of Supply Management Services Index
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© 2023 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.