By Aoifinn Devitt, CFP® – Chief Investment Officer
It must be mid-August because the Halloween candy and costumes have hit the store aisles. Like corporations and their earnings stores have become adept at telegraphing activity like holidays far in advance. This year keeping Trick or Treaters happy is likely to be a little more costly though. “Sugarflation” has sent the price of sugar (and Halloween candy) higher- up over 40% since June 2022 – perhaps a double-edged sword for those of us who need to cut back!
Elsewhere prices showed further signs of moderating – with month-on-month inflation as measured by core CPI rising only 0.1% on the month and headline CPI only +3.2% year on year. This news was quickly digested as evidence that the Fed’s tightening monetary policy is working and will tend towards a pause in rate hikes in coming months. While consumer spending and confidence remains strong, we are starting to see reports that show increases in credit card debt as well as a rise in delinquencies and the ratio of credit card debt to disposable income.
While these numbers don’t give us cause for alarm, and the consumer is still in better shape generally than in previous years, it is perhaps an indication that, for some, pandemic savings are running dry while consumption continues.
With the end of the summer comes the end of earnings season and by now nearly 90% of companies across the US & Europe having reported earnings. Although earnings were weak, off around 1% year-on-year in the US and 8% down in Europe, most companies were able to outperform weak consensus estimates. This season the outperformance received a subdued response though, with little celebration, but equally the overall weaker earnings did not meet with a sell-off. Markets seemed to be provoked by more exogenous factors in these past few weeks.
Markets remain somewhat under the weather as the chart below shows (numbers through August 15, 2023).
Two consecutive downgrade movements – one by Moody’s of 10 small and mid-sized banks and one by Fitch of the US credit rating were double blows to sentiment even though both seemed to be behind the curve and reactionary rather than indicative of new news. Just this week it seemed that Fitch was primed to follow Moody’s lead in downgrading US banks as some of the uncertainty around the impact of rate rises continued to circulate.
Rumbles of trouble on the geopolitical front created some angst around market demand. China continues to underwhelm with a string of poor data releases – from weak trade numbers to poor employment statistics and now an emergency rate cut to support markets. A recent executive order signed by President Biden limited US investments in China for advanced semiconductors, quantum computing and AI systems, continuing a streak of protectionist trade gestures that look to dampen trade figures even further.
As school starts up again, we may see the return of normal programming as financial journalists (at least) return to their desks and commentary and content pick up again. We will also see more attention on election chatter that is gathering steam. We wish all our readers a pleasant end to the summer.
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