August 2023 | Global Equity Markets Review

Market Updates September 13, 2023

The markets declined in August following two months of strong performance in June and July. The S&P 500 return was -1.6%, with the S&P Mid Cap 400 and S&P Small Cap 600 returns at -2.9% and -4.1%, respectively. In an encouraging sign, the stock market rallied 3.2% from its mid-month low to mitigate the losses. Down markets typically favor non-cyclical stocks, which performed slightly better than cyclical stocks, and investors, as volatility increased investors sought safety in large growth stocks over large value stocks. Overall, the decline was broad-based, with 7 of 10 stocks in the S&P 1500 Composite declining during the month with a median price drop of 3.9%.

There are points in the business cycle when critical inputs compete for investor attention. We are at this stage today as the Federal Reserve’s efforts to lower inflation by raising short-term interest rates conflict with an expanding economy and earnings growth. Most forecasts for the economy beginning this year were too pessimistic, and resilient consumers have continued to spend. The combination of a strong job market and a peak in inflation from a decades-high level in 2022 boosted optimism as the year progressed. Similarly, analysts who publish company earnings forecasts also raised their forecasts and increased investor appetite to take on more equity risk after a dismal 2022. The first chart below shows the monthly trend in the S&P 500 estimate, trending higher from its mid-year low. Concurrently, the Fed continued its path toward higher rates to bring inflation down to its long-standing goal of 2.0%. The three-month Treasury bill offers the highest yield in over 20 years, highlighted in the second chart below. Today’s high yields on risk free short Treasury bills look tempting to investors unimpressed with a 1.50% dividend yield in the S&P 500, even as the outlook for earnings improves. This conundrum will dominate the debate in the stock market during the final months of 2023.

International equity markets declined in sympathy with the drop in the U.S. market. The S&P Global BMI ex-U.S. return was -4.21%. The S&P Developed BMI ex-U.S. Index and S&P Emerging Markets Index returns during the month were -3.92% and -5.08%, respectively. The dollar staged a major rally, rising 1.73%, which further depressed international market bourses for U.S. investors. Economic growth outside the U.S. has slowed somewhat, while the strength of the consumer in the U.S. in the U.S. has pushed any calls for an economic recession into 2024 or beyond.

Disclosures

Index Returns – all shown in US dollars

All returns shown trailing 8/31/2023 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:

The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.

An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.

Key Indicators

Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.

The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market's expectation of 30-day volatility.

General Disclosure

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