Trust Investment Management
Total Returns (%) as of August 31, 2023
| Fixed Income | YTD | 1 Mo | 3 Mo | 1 Yr | 3 Yrs | 5 Yrs | 10 Yrs |
|---|---|---|---|---|---|---|---|
| U.S Aggregate | 1.37 | -0.64 | -1.06 |
-1.19 |
-4.41 |
0.49 |
1.48 |
| High Yield |
7.13 |
0.28 |
3.36 |
7.16 |
1.81 |
3.32 |
4.47 |
| Global |
0.30 |
-2.03 |
-0.68 |
-0.02 |
-9.67 |
-3.76 |
-1.66 |
| Equities | |||||||
| U.S. Large Cap |
18.73 |
-1.59 |
8.28 |
15.94 |
10.52 |
11.12 |
12.81 |
| U.S. Small Cap |
8.96 |
-5.00 |
9.00 |
4.65 |
8.12 |
3.14 |
7.96 |
| Developed International |
10.87 |
-3.83 |
3.80 |
17.92 |
6.05 |
4.14 |
4.93 |
| Emerging Markets |
4.55 |
-6.16 |
3.47 |
1.25 |
-1.39 |
0.98 |
2.99 |
Since National Aviation Day is celebrated in August, many of us marveled at the stunt airplanes and modern fighter jets that performed spectacular aerial routines. While pilots took to the skies, investors were grounded as markets largely retreated in August. Although the U.S. economy continues to show strength, investors are concerned that inflation is still too high. This may prompt the Federal Reserve to remain hawkish for longer, which can be a headwind for both equities and fixed income.
Updated inflation figures were released in August, and both the Consumer Price Index (CPI), and Personal Consumption Expenditures (PCE) increased by 0.2% in July (the same rate as June). The Fed prefers to use the core PCE index (which excludes volatile food and energy) to monitor inflation since it includes a more comprehensive picture of costs for consumers. Core PCE increased by 4.2% over the past 12 months, and 2.8% over the past 3 months through July. While the trend is heading in the right direction, the Fed is not yet confident that inflation will drop down to their 2% target without further action.
Fed Chair Jerome Powell delivered a speech at the annual symposium in Jackson Hole, Wyoming toward the end of August. He commented that “it is the Fed's job to bring inflation down to our 2% goal, and we will do so. We have tightened policy significantly over the past year. Although inflation has moved down from its peak—a welcome development—it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” He continued, that “getting inflation sustainably back down to 2% is expected to require a period of below-trend economic growth as well as some softening in labor market conditions.”
The CME Group’s FedWatch Tool suggests that there is only a 7% chance that the Fed will raise rates in September. However, the probability of a 0.25% rate increase rises to 42% by December. It would appear that the Fed may not begin to lower rates until next year as the FedWatch Tool forecasts an 83% probability that rates will be reduced below 5% by the end of 2024.
August was a volatile month that ended mostly in the red. This may not necessarily be bad since markets often need to pull back and take a breather for the fundamentals can catch up. While volatility may continue throughout the remainder of the year, the markets should respond favorably once the Fed signals the end of the current rate tightening cycle.
