Market Recap 9/29/2023

It was a pretty quiet news week, at least as far as the economy goes, and the markets were largely directionless going into the end of the quarter.   Discussions are still centered on interest rates and inflation, although the looming government shutdown is getting more and more attention.


There are clear signs that the spike in mortgage rates to 23-year highs is beginning to bite.



Pending home sales slid -7.1% in August.  This was way below expectations of a -1.0% decrease, and the total decline in pending home sales since the peak is larger than what we saw during the housing crisis.



Despite sales grinding to a halt, prices are holding up.  The S&P/Case-Shiller index was up +1.0% year-over-year in July.



What explains the disconnect?   There simply aren’t many homes for sale.  Unlike during the financial crisis, the months’ supply of existing homes for sale is bouncing around the lowest levels in over twenty years.



The other main report for the week was a key inflation print for August.  It showed that inflation continues to soften, with the core PCE index falling to 3.88%, as you can see below.



Time For Another Shutdown?


Every few years it seems our fearless leaders talk themselves in circles and end up shutting the government down.  This isn’t a new phenomenon, as you can see below.



How long this shutdown will last is anyone’s guess.  Of course, Moody’s warned in a note today that a prolonged shutdown would be a “credit negative” event for the country – a euphemism for a possible rating downgrade.  That should shock no one. 


But what about the economic impact?  Past shutdowns have usually meant a roughly 0.1% reduction in quarterly GDP for every week the government is closed.  Some of this is clawed back after things get back to business and federal employees receive their backpay.    


What’s the impact on the stock market?  Looking at the longer shutdowns in modern history, the market reaction has been pretty muted. 



Of course, it doesn’t mean history will repeat.   Time will tell.


(Other) Charts We Found Interesting


1.      Gasoline prices seem to be increasing daily.  Diesel prices are also on the upswing, and this cost probably has a bigging impact on the inflation outlook given how important diesel is in the manufacturing and shipping processes.



2.      The average cost of gasoline in the California hit $6.03 this week compared to a national average of $3.83.  Why so much higher?   Taxes play a part…as do emissions rules (which are being suspended).



3.      How big of a problem are today’s petrol prices for consumers?  It hurts, but at the macro level a gallon of gas consumers less of a person’s hourly wage than during the 2011 to 2014 period.



4.      The economy has beat expectations this year in part due to a surge in fiscal spending.  How the government shutdown will impact this has yet to be seen.



5.      The bond market is on track for a third consecutive year of losses – something we haven’t seen in U.S. history.



6.      Now this is surprising.  Active people don’t really burn more calories than inactive people.  And more active cultures don’t really burn more calories than less active cultures (red box in the left panel).   And probably less surprising, our brain consumes a lot of energy relative to our evolutionary cousins (right panel).   



Have a good weekend


Charles Blankley
Chief Investment Officer
Gemmer Asset Management LLC


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