September is here, and so is college football season.
Similar to what we have written over the last several months, inflation concerns and how Central Banks handle them are really driving global markets, both equity and fixed income. In the US, Fed Chairman's Powell Jackson Hole speech in late August was some of his most direct statements to date. His speech clearly stated his focus is on restoring price stability and that the conditions to do so (higher interest rates, slower growth, softer labor market conditions) will "bring some pain to households and businesses" and that they are "unfortunate costs of reducing inflation." He and others on the FOMC have also stated they plan on maintaining restrictive policies for quite some time, suggesting that even if the economy were to enter a recession, the Fed would not immediately lower rates. These statements clearly had an impact on markets as equities have pretty much sold off since these remarks while yields rose across the Treasury curve, though parts of it remain inverted.
- Even with the rising USD, emerging and frontier markets were the only equity indexes with a positive return in August, gaining 0.4% and 1.8% respectively.
- In the US, value beat growth in large caps but underperformed in small caps.
- REITs were the lowest performing asset class with US (-6.2%) and non-US REITs (-6.6%) both declining similar amounts.
In fixed income:
- Similar to equities, it was mainly a sea of red, with only US 3 Month Tbills earning a positive return of 0.2% This is also the only FI index was a positive YTD return.
- For the month, corporates outperformed their Treasury and Muni counterparts in the 1-5 yr space, but munis outperformed in 5-10 year and 10+ year spaces, reminding us that these yield curves are shaped differently and respond to different economic data.
- The 3 month Tbill ended August with a yield of 2.96%. As a comparison it started the year with a paltry 6 bps yield. While rising rates can be painful at times, it is helpful to remind savers that they are now able to receive decent yields on their fixed income assets.