The first half of 2023 saw a red-hot rally in the stock market. However, this came to a halt in the third quarter due to concerns over inflation and central bank policy, leading to higher interest rates. The decline in consumer confidence, unrest among unions, weaker consumer pockets and mounting credit card defaults also contributed to a potentially volatile market in the final months of the year.
The high-growth technology sector could be immediately impacted, as it faces pressure from higher discount rates impacting future cash flow. There appears to be a bearish trend forming around technology. Corporate earnings are expected to decline for the third quarter in a row, with many S&P 500 companies issuing negative earnings per share guidance.
The American consumer is also sharing a dim outlook, as consumer confidence has dropped for the second straight month. Fixed income struggled in Q3 after experiencing a 2.09% gain in the first half of the year. The growing expectation that rates will remain high and the possibility of a government shutdown led to a major bond market selloff as the yield on the 10-year U.S. Treasury reached 4.80% in late September. The Federal Reserve's interest rate hiking cycle may continue to keep rates high for the foreseeable future, leading to discomfort for both investors and consumers.
The second half of 2023 is shaping up to be much more volatile, possibly creating a "tale of two economies," and all eyes will continue to be on the Fed and other central banks. While economists reference a "soft landing" or "Goldilocks" narrative, current interest rate positioning may be delaying an economic downturn rather than averting it. The full effects of keeping rates high in the near term have yet to be seen.
Read the Retirement Market Recap for an in-depth review of what’s happened in the third quarter. Contact us with questions about this Market Recap or how HANYS Benefit Services may enhance your organization's retirement offering.
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