Market Outlook
Markets kicked off the month in-line with the historical trend of September being the worst month for equity returns as the MSCI All Country World Index had its worst weekly performance since last September. While Friday’s payroll report showed mixed underlying data, the JOLTS job openings declined, and ISM® Manufacturing Purchasing Managers Index® was weaker than consensus expected, falling deeper into contraction. Discount retailer earnings continue to show falling inflation has significantly eroded their pricing power on consumers. Additionally, the pullback in semiconductor stocks continued last week, with NVIDIA Corp. losing nearly $280 billion in market capitalization in just one day as lofty valuations continue to adjust. Despite the decline, large cap still outperformed smaller capitalization stocks as energy prices fell to the lowest level in over a year. While the Federal Reserve’s (Fed’s) focus has shifted towards the health of the labor market, this week’s release of inflation data should likely provide support for the Fed to cut interest rates at next week’s meeting.
Chart of the Week
Consensus expects the “Misery Index,” or the sum of the U.S. unemployment rate and Consumer Price Index, to decline to 6.8% this week.
This would mark the lowest level since March, which further reinforces that economic growth is slowing, but far from contracting.
Softening economic data paired with the beginning of easing monetary policy continues to support our positive view of quality allocations given their strong fundamental characteristics.
