At a glance

Stocks came under pressure last week, despite no change in the Federal Reserve’s target interest rate, with investors focusing on higher interest rates for longer. Higher interest rates are pressuring housing market activity in addition to investor sentiment.

chart depicts global health trend at 36.5 trending weak to 45.8.

Source: Global Economic Health Check, U.S. Bank Asset Management Group, September 22, 2023.

U.S. Bank Global Economic Health Check

The U.S. Bank proprietary Global Health Check incorporates more than 1,000 data points — including business climate factors and economic sector categories for 22 major economies representing 80 percent of total global wealth — to reflect our view of the current strength of worldwide economic growth.

Number of the week:

1.4%

The S&P 500’s average annual return in October over the past 20 years, the fourth-highest average of all months.

 

 

 

Term of the week:

Federal Reserve Summary of Economic Projections

A summary of Federal Open Market Committee participants' projections for economic growth, the unemployment rate, inflation and the appropriate policy interest rate. The summary is released four times per year.

Quote of the week:

“October historically is viewed as a transition month, during which investor focus shifts to the new year. The new year is often associated with a renewed sense of optimism for growth and prosperity, including generally positive expectations for company earnings. This helps explain why equity returns in the fourth quarter are typically favorable.”

― Terry Sandven, Portfolio Manager, Chief Equity Strategist, U.S. Bank

Global economy

Quick take: Higher mortgage rates are hampering home builders and turnover in the existing home market. Business sentiment remains modest around major economies, with services activity growing while manufacturing contracts.

Our view: Our U.S. Health Check reflects a resilient U.S. economy as the Federal Reserve (Fed) maintains tight monetary policy to combat elevated inflation. Our foreign scores are below median, reflecting choppy progress in China’s reopening and struggles in Europe.

Equity markets

Quick take: U.S. equities continue to trade with a modest risk-off (less aggressive) bias as the third quarter draws to a close.

Our view: Persistent inflation, elevated interest rates and uncertainty over the pace of earnings growth in 2023 and 2024 remain headwinds to advancing equity prices.

Bond markets

Quick take: Treasury yields jumped last week (prices fell) after the Fed indicated it may keep short-term policy rates higher for longer to combat inflation. Ten-year and two-year Treasury yields reached their highest weekly close since 2007. Sentiment toward higher risk and higher return assets also faltered, with high yield bonds falling in price.

Our view: Fed messaging that monetary policy must remain tight for longer reinforces our view that aggressive Fed rate hikes intended to cool demand and, thus, inflation have not yet entirely flowed through to economic activity.

Real assets

Quick take: Rising interest rates continue to harm public Real Estate, with all property types down last week. Relatively tight supplies supported oil price gains.

Our view: Decelerating economic growth and corporate earnings could support tangible assets with stable cash flows, while commodity prices remain sensitive to global economic growth and inflation expectations.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is one of the most frequently used statistics for identifying periods of inflation or deflation. The S&P Global Purchasing Managers' Index data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies. The Bloomberg High Yield Index covers the universe of fixed rate, non-investment grade debt.

Insights from our experts

How we approach your long-term investing success

We use a data- and process-driven three step methodology to develop an investment strategy unique to you.

The debt ceiling debate in focus

With the U.S. government’s authority to borrow money bumping up against the federally mandated debt limit this year, is a political confrontation brewing that could impact capital markets?

How we analyze the economy

The economy doesn’t just move in a straight line. Our Health Check assesses its direction and how fast it’s moving.

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This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio.

Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. 

Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

Investments in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in fixed income securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities.

Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments.

The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes.

There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

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The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.