August 2023 - Market Update

Data Dashboard

Stock Market

In August, the Total World Stock Market declined by 2.91%, still being up 14.86% YTD. The S&P 500 index also experienced its first monthly decline in the past six months, concluding the month with a 1.6% decrease. It is noteworthy that the index remains in positive territory YTD, with an 18.7% increase. This recent downturn in U.S. equities can be attributed to the apprehensions regarding a more assertive stance by the Federal Reserve, despite a robust earnings season that exceeded expectations.

Both U.S. Small-Cap equities and Mid-Cap equities declined over the month as well. Additionally, among the 11 sectors, a substantial 10 concluded the month in negative territory. The Utilities sector exhibited the most decline, plummeting by -6.1%, whereas the Energy sector was the sole sector to exhibit positive performance, posting a 1.6% increase for the month.

August Monthly Returns (by US Sector)

Bond Market

Bonds faced downward pressure as longer-term yields rose to multi-year highs during the month. This increase in yields was primarily due to strong economic data, which reduced concerns about a looming recession. Notably, the 10-year U.S. Government Note reached its highest level since 2007 at 4.3% in August.

In contrast, the High Yield sector exhibited positive performance with a modest increase of 0.25% for the month. The resilience of this asset class can be attributed to its shorter duration and its substantial exposure to the Energy sector, which contributed to its growth during this period.

Economics

The rate of headline inflation, which stood at 3.2% YoY, saw a slight uptick in July. This increase was primarily driven by the persistent high costs associated with housing. The mortgage rates have reached a 22-year high at 7.53%. Meanwhile, core CPI inflation, at 4.7%, continued its deceleration for the fourth consecutive month.

In August, there was an increase in the unemployment rate, which reached 3.8%, despite the creation of 187k jobs in the economy. Job openings declined to 8,827k, lowest since March 2021, indicating loosening of the labor market. Two areas affecting unemployment in August were the bankruptcy of the Yellow trucking company and the continuation of the writers/actors strike.

Tactical Trades

In the Tactical Stock portfolio, we increased our exposure to the Energy sector in response to its strong performance during the month and it being the only sector to exhibit positive returns. Conversely, we reduced our positions in the Communications and Financials sectors. In the Tactical ETF portfolios, we exited our holdings in Brazilian and Technology equities to reallocate our investments toward Infrastructure and Homebuilders.

As for Tactical Fixed Income portfolios, we traded out of convertible bonds in favor of more floating rate treasury funds.

General Client Considerations

Below is a table showing the change in contribution limits for 2023:

We look forward to hearing from you!

Thanks,

The Friedenthal Financial Team

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