Hope you are doing well! As expected, the Federal Reserve kept interest rates unchanged last week at its September meeting. The overall outlook shared, however, was one of higher rates for longer, with perhaps one or two more hikes this year.

In the short-term, U.S. stock market indexes didn’t show much love in response to the hawkish-sounding Fed, as the S&P 500 fell by 2.93%, the Nasdaq 100 traded lower by 3.30%, and the Dow Jones Industrial Average decreased by 1.89% for the week.

Pause with a “Clause”

At the September meeting, the Federal Reserve delivered a more sobering message than many had hoped for. Essentially, the message was that the Fed would keep rates unchanged this time (i.e., a pause), but that it ultimately predicts higher rates for longer (i.e., the “clause”).

The Fed also indicated that rates will likely remain “high” further into next year than it had previously anticipated.

In the Fed’s Summary of Economic Projections (SEP), division among voting members was apparent, with 12 out of 19 Fed officials favoring one more rate hikes this year.

Treasury Yields Rise

Leading up to and continuing after the conclusion of the Fed meeting, Treasury yields rose.

The benchmark 10-year note, used as a barometer for mortgage rates and many other products, rose by around 11 basis points last week; it closed the week near 4.439% after notching its highest level since 2007.

Two-year yields and other short-term duration Treasuries also rose last week, with the two-year note yield hitting a 17-year high near 5.197% last week; it settled near 5.114% for the week.

Yields at present levels may present viable opportunities for certain investors. And it’s not just Treasuries – municipal bonds and high-quality corporate bonds are also becoming attractive.

Government Shutdown Looms

The next government funding deadline of Oct. 1 is looming and will surely be in the headlines all this week. Lawmakers have differing opinions on funding and spending cuts.

It seems that the uncertainty of a potential shutdown started to be priced into financial markets last week, and we will see what this week brings.

Volatility Returns

Let’s face it – we have had a pretty smooth ride in the markets for 2023 so far, especially given the rising interest rate environment.

S&P 500 Volatility, as measured by the $VIX index, has been subdued for an extensive period, matching 2020 lows, even at the start of last week. That means investors were not expecting market volatility and were perhaps overly complacent given the headline risks and current environment.

Last week, however, S&P 500 Volatility ($VIX) woke up and rose around 24.57%, as the S&P 500 experienced its worst week since March.

Rising rates, a looming government shutdown, and a higher-for-longer Fed narrative were likely all partial contributors to the rising volatility.

 A Reminder on Time 

Time – it is one of the golden keys to investing. Speaking of time, we are approaching the end of the quarter and the end of the month. Is 2023 flying by, or what?

September is notably a soft seasonal time of year for U.S. equities. With only a week to go, we will see where the rubber meets the road as the markets digest the Fed, a looming government shutdown, and a “higher for longer” narrative.

The news headlines are getting more bearish – can that be a good thing? These types of news periods can be boons for many long-term investors with certain risk tolerances and investment objectives.

With that said, if you have any questions or needs, please feel free to call our office!

Sincerely,

The Trademark Capital^® Team

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Trademark Capital’s investment strategies are built using quantitative, proprietary algorithms that are designed to identify and react to changing market conditions. However, investors should be aware that no investment strategy or risk management technique can guarantee returns or eliminate risk in any given market environment. As with all investments, Trademark Capital Management’s investment strategies are subject to risk and may lose money. The investment strategies presented are not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Due to our active risk management, our managed portfolios may underperform during bull markets. Past performance is no guarantee of future results.