Weekend Update, October 23rd, 2023
The S&P 500 index closed on its lows for the week. The S&P 500 index fell -2.4% last week, ending its October 2 week winning streak. The market benchmark is down month to date, as comments by Federal Reserve Chair Jerome Powell raised investors’ concerns about interest rate policy. The S&P 500 ended the week at 4,224, down from last Friday’s closing level of 4,328. The S&P 500 is down -1.5% for the month to date but still solidly in positive for 2023 with a year-to-date gain of about +10% led by large cap technology stocks.
The Fed’s Chairman Powell said the central bank’s policy-setting committee may have to increase its policy rate more if the economy persistently grows at “above-trend” rates or labor market conditions don’t continue to soften, though the committee will be “proceeding carefully” depending on incoming data. Recall, that the committee was VERY late in recognizing the rise in inflation in 2021. The financial media now appears quite late discussing “real interest rates”. Our investment team is seeing signs of both a decline in the rate of inflation and going forward, a decline in “real interest” rate premium. A moderation of inflation and peak and decline in “real rates” would allow sentiment and valuations to bottom and expand from here. It would most likely allow stocks to rally just as many financial media commentators discover what the OHFG has been discussing for upwards of 12 months. Here is a chart of the 2-year real interest rate. Down and to the right is in this real time chart is historically a good thing for the stock markets.
Investors, we are in institutional fiscal year-end tax timing. During this period in late October, both winning and losing stocks tend to get sold at this time of the year. The real estate sector had the largest percentage drop last week, down -4.6%, followed by a -4.5% decline in consumer discretionary. Other groups declined by at least -3% each included technology, materials and industrials.
Only two sectors managed to post weekly gains, consumer staples and energy each added +0.7%.
In the real estate sector, shares of Crown Castle (CCI) fell -8.9% on the week as the company, which owns, operates and leases cell towers, reported Q3 adjusted funds from operations below analysts’ mean estimate as revenue also missed expectations. The declines in consumer discretionary included shares of Tesla (TSLA), which lost -16% as the electric vehicle manufacturer reported weaker-than-expected Q3 results. The miss came as Tesla’s margin more than halved year over year amid reduced vehicle prices to stimulate unit demand in China and domestically.
On the upside, the gains in consumer staples included Dollar Tree (DLTR), which received a rating upgrade to buy from neutral from Goldman Sachs. Shares of Dollar Tree climbed +2.4%.
This week, the market will receive earnings reports from a number of important companies including Microsoft Corp. (MSFT), Google parent Alphabet Inc. (GOOG, GOOGL), Visa Inc. (V), Coca-Cola Co. (KO), General Electric Co. (GE), Facebook parent Meta Platforms Inc. (META), International Business Machines Corp. (IBM), Boeing Co. (BA), Automatic Data Processing Inc. (ADP), Amazon.com Inc. (AMZN), Mastercard inc. (MA), Merck & Co. (MRK), Intel Corp. (INTC), United Parcel Service Inc. (UPS), Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX).
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