Global equities ended down for the third consecutive week following negative reactions to the Federal Open Market Committee (FOMC) meeting on Wednesday, and the S&P 500® delivered its worst weekly performance since March. With the 2-year U.S. Treasury yield jumping to its highest level since 2006, investors appear concerned that “higher-for-longer” monetary policy is becoming too restrictive. U.S. markets were led lower by smaller capitalization stocks. In fact, the Russell 2000® Value Index is now negative for the year given its outsized exposure to Financials and Real Estate, which face mounting headwinds from rising interest rates. In the week ahead, a number of industry bellwethers report earnings, which should offer insight into the underlying health of U.S. consumers.
Emerging market equities led last week, primarily on Friday, as news reports indicated China may ease foreign shareholder restrictions, delivering China’s best one-day return in nearly two months.
Chart of the Week
At the September 20 meeting, the FOMC held the fed funds rate unchanged at 5.25% -5.50%. Although a pause was widely anticipated, both the S&P 500 and the Nasdaq 100 suffered their second-worst one-day declines on a FOMC decision day this year.
The Federal Reserve’s updated dot plot again indicated one more possible hike in 2023 but now show higher median rates in 2024 and 2025. Higher median rates indicate fewer rate cuts than expected, reinforcing our higher-for-longer monetary policy view.
Higher-for-longer policy is a key driver of our expectation for a slowdown in 2024, supporting our de-risking posture within asset allocations.