John E. Chapman
Chief Executive Officer
With another summer winding down and kids heading back to school, we are entering the month of September with a bit of trepidation. Not only have U.S. equities rallied this year against the backdrop of declining earnings, but September has also historically been the worst month of the year for stocks. If investors could choose to skip past any month based on the historical action, September would be it.
September is the only month that has seen the Dow average a decline over the last 100, 50, and 20 years. Over the last 100 years, the Dow has averaged a decline of more than 1% in September with positive returns only 40% of the time.
Fortunately for investors, while September has historically been the worst month of the year for the U.S. stock market, it precedes the strongest three-month period on the calendar, which runs from October through December.
August brought the first monthly declines for both the S&P 500 and the NASDAQ since February as interest rates ticked back up. This said, investors have enjoyed very good year-to-date gains so far in 2023, particularly if they have had exposure to some of the largest technology stocks. While the Dow is up a modest 6.3% through the end of August, the S&P 500 has gained 18.7% and the NASDAQ a whopping 34.8%.
Fed chair Powell’s speech at the Jackson Hole economic conference was more hawkish than many expected. He reiterated the Fed’s goal of seeing the rate of inflation drop back to 2% and suggested the Fed may need to raise the fed funds rate again before the end of the year.
There continues to be much debate over a pending recession, however. For the third time in as many months, Goldman Sachs has lowered its odds of a recession in the next year down from 20% to 15%. Giving odds for a recession in such a precise manner certainly makes for great headlines and it’s always good to have baseline forecasts but to think that something as complicated as the U.S. economy can be forecasted with such precision is at best naïve.
Our base case continues to anticipate an economic slowdown going into 2024. We believe an eventual recession is still more likely than not given the lagged impact of tight monetary policy and the weaknesses we are seeing in leading economic indicators. Presently, the Bloomberg consensus forecast puts the odds at 60% a recession will develop in the next 12 months.
We will continue to monitor the economy and markets very closely. Please feel free to contact us directly should you have any questions or concerns.
