On Air with Altair: 3Q 2023 Market Review Video
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CONSUMERS CONTINUE TO BE TESTED
U.S. consumers have been carrying the heavy load for the economy since before the pandemic and continue to do so. Consumer spending, which accounts for about 70 percent of the economy, remains vigorous. Some trend lines are cause for concern, however. Delinquencies on credit cards and auto loans are at their highest rates in over a decade. And excess savings from Covid-era stimulus is dwindling. Tiring of elevated inflation and increased borrowing rates, consumers are expressing increased pessimism in national sentiment surveys. For now, they remain in good shape. We are cautiously optimistic that their spending will enable the economy to remain strong.
FURTHER FED RATE HIKES UNLIKELY
The Federal Reserve has signaled the possibility of a halt to interest-rate increases. Fed policymakers say the sustained rise in longer-term Treasury yields could provide the needed additional financial tightening. Barring a dramatic change in economic data, then, we believe the Fed is done raising rates. That is a needed – and welcome – first step toward normalization of the current restrictive monetary policy that’s beginning to squeeze borrowers, investors and the economy. The all-important second step – cutting rates to take the pressure off – still appears distant. We do not anticipate a rate cut for at least six months.
MIDDLE EAST WAR RAISES GLOBAL RISK
Global tension is high as we await further consequences from the emerging Middle East war that has killed thousands of people. The horrific attack by Hamas on Israeli civilians on October 7th already has led to a humanitarian crisis and created more uncertainty about the world economy. The extended war between Russia and Ukraine adds to geopolitical anxiety. Aside from some turbulence in oil prices, financial markets have so far been relatively unaffected. Markets have maintained their historical tendency to stay relatively stable during military conflicts. Wide expansion of either war, however, would heighten volatility and pose additional risk for the global economy.
Rising U.S. Treasury yields and expectations that the Fed could keep interest rates high for an extended period has made for a difficult late summer and fall for investors. But the economy remains strong, inflation is moderating, and corporate earnings are gradually improving. We recommend clients maintain overall target allocations in the higher-, medium- and lower-risk categories.
All investments may lose money. We do not intend for this material to match your goals or risk tolerance and our opinions may change. For more information about our business practices and identified conflicts, visit https://altairadvisers.com/disclosures/.