Market Update: September 1, 2023

Welcome to the Weekly Market Update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth, and here’s what happened in the market this week.

 

Not a whole lot has changed these last two weeks. In the month of August, the market lost about 4.5% in value for the first 3 weeks of the month and last week, we’ve recovered a good portion of that thanks to a good job markets report earlier this week.

In the news this week, the Chinese economy continues to show weakness as banks start cutting interest rates on savings deposits. The unemployment rate increased to 3.8% for August. And worker demand has cooled significantly these past few months.

Now those last two bits of news may seem like bad news but it’s actually not. At least, not yet. One of the side-effects from COVID was a surge in demand for labor commiserate with a fall in labor supply. This resulted in a very strong labor market that pushed wages, quit rates, and job openings (shown in blue) to higher levels. Which of course meant workers could find better paying jobs with relative ease. But it also meant higher inflation (shown in purple) as better earning labor demanded higher priced goods and services. So, the fall in job openings or JOLTS is continued confirmation that inflation should continue to fall. With the release of the latest JOLTS report on August 29, the market pushed higher by about 1.5% on the day indicating the return to normalcy in the labor market was well received by the stock market. However, there is a point when falling labor demand as measured by the JOLTS becomes less of a disinflation story and more of a deflation story. Back in 2008, the state of the economy forced a precipitous drop in job openings that resulted in an equally precipitous drop in inflation ultimately resulting in negative inflation or deflation and a deep recession. This is the kind of scenario the Federal Reserve is looking to avoid. Yes, they want job openings to fall to help reduce inflation. But they don’t want firms to stop hiring altogether.

This Weekly Market update is meant to be an enticing appetizer for market and economic insight. For a heartier serving, please check out our podcast, “Up and to the Right” on all your favorite podcasting apps. And for the full course meal, check out our website at signaturewmg.com. And don’t forget to like and subscribe.

 

Sources:

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved September 1, 2023, from FactSet Database.

FactSet Research Systems. (n.d.). JOLTS and YoY % CPI (Interactive Charts). Retrieved September 1, 2023, from FactSet Database

 

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