Markets “In a Nutshell” for October 23, 2023
Investment Week at a Glance
Stocks finished lower for the week. The Dow Jones Industrial Average fell 1.60%, the S&P 500 was down 2.40%, and the NASDAQ fell 3.20%. Foreign stocks (MSCI EAFE) were also down, falling 1.70%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 4.91%. (Data source: Wall Street Journal)
Yields Move Higher
The market pays close attention to the 10-year U.S. Treasury yield, and last week we saw another spike as it moved close to 5%. The spike caused volatility in both the equity and bond markets this past week. The reason for high yields is the economy continues to stay strong as the labor market and consumers have been able to absorb higher rates. With the economy stronger than many expected, the Fed is more likely to look at raising rates and keeping rates higher for longer. Inflation may need to come down more for the Fed to cut rates and give some relief to the economy and markets. If inflation can come down to the 2% range, it is expected the 10-year treasury yield would be in the 3.5% to 4.5% range, which could boost the economy and markets.
Dow Jones Negative for 2023
Despite the strong start to 2023, the Dow Jones is now negative for the year as we head toward the end of the year. The overall market continues to be driven by the “magnificent seven” as the rest of the market has struggled throughout the year. The S&P 500 is now only up 10% for the year and since the end of 2021, is down over 11%. Despite the S&P 500 being up 10%, the equal-weight S&P 500 is down 3% for the year, showing just how much the “magnificent seven” have carried the market this year. When the market gets top-heavy as it is now, it is important for investors to be diversified in case the high-flyers begin to pull back closer to the rest of the market. Although it may seem that mega-cap companies will keep moving higher, every business goes through cycles and has moments of lagging the rest of the market.
What is the all-time high on the 10-year U.S. Treasury Yield? (Scroll Down for Answer)
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3. 15.8%. This all-time high occurred in September, 1981. Fed Chair Paul Volcker attacked inflation and drove rates to all time highs during his time as Fed Chair to halt inflation.