September 2023 Market Review

Third quarter consumer spending persisted like rain in New England and heat throughout the country. July rainfall in Boston totaled about 11 inches, almost two times the 20-year average. July also set global heat records with over 90 million residents experiencing alerts and extended triple digit temperatures. Third quarter GDP may run as hot.

Spending, aided by solid wages and COVID-related excess savings, buoyed inflation pressures and the economy. While goods prices declined from pandemic-driven peaks, non-shelter services inflation, tied to the tight labor market, has seen only limited improvement. This strength left questions of when inflation may approach the Fed’s 2% target. 

U.S. Treasury yields moved sharply higher in September, with the 10-year reaching the highest levels since 2007 and ending the quarter 73 bps higher at 4.60%. The 2s-10s curve steepened 58 bps in the quarter but remains inverted by 47 bps. All three months of Q3 posted negative Treasury returns, as the market began to shift to expect a “higher-for-longer” Fed policy. The FOMC left rates unchanged at the September meeting, reflecting a “hawkish pause,” leaving futures indicating 50/50 odds of another hike by year-end.

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