August 2023 Market Commentary: Shaping Your Financial Path in an Optimistic Economy

July Recap and August Outlook

In July, the economic data surprised everyone by showing that the economy was stronger than expected. Prices for goods and services fell, and the job market remained strong.

Previously, there were concerns about a possible recession, but now it seems there's a more positive outlook. After a recent meeting, the head of the central bank, Mr. Powell, talked about a "slowdown" instead of a recession.

The central bank (Fed) raised interest rates slightly, which was expected. This brought rates to the highest level in 22 years. Whether they will increase rates again in the future is uncertain. The next Fed meeting is in September, and Powell mentioned that they will assess the data before making a decision.

Despite a strong job market, there are other factors that might impact the economy. Government spending has decreased due to negotiations on the debt ceiling, and people will need to start repaying student loans, which could affect spending.

The overall price of goods and services, including food and energy, is getting closer to the central bank's target. However, the cost of other things, not included in this calculation, remains high and relatively stable.

What is the Data Saying?

In June, when the central bank had a meeting, they agreed that they might raise interest rates two more times this year. Now that they've raised rates in July, people might start focusing less on what the central bank is doing and more on what might happen next.

"Soft landing" is a phrase used to describe a situation where the central bank tries to control prices without causing a recession. This is tricky and often ends up with them raising rates too much and then quickly reducing them, which can be like a roller coaster for the economy. Despite this, the economy is still strong after several rate increases. The job market is good, and things like people's opinions about the economy are positive, all showing that the economy is in good shape.

The central bank isn't the only reason for this. They were a bit slow to raise rates, and that allowed prices to go up a lot. But the government did things to help people during the pandemic, like giving them money and tax cuts, which prevented things from getting too bad. Also, higher wages because of not enough people to do jobs helped.

The economy depends on people buying things. So, to predict if there might be a recession, we need to know if people will keep buying. Right now, people seem to be buying a lot, and recent information shows that the economy might grow a lot in the next few months.

Chart of the Month: The Economy Is (Surprisingly) Better Than Expected

In mid-July, economic data hit the highest level of outpacing expectations in two years

CITIGROUP U.S. Economic Surprise Index

Source: Axios Visuals, Fact Set

Equity Markets in July

The S&P 500 was up 3.11%
The Dow Jones Industrial Average rose 3.35%
The S&P Mid-Cap 400 increased 4.05%
The S&P Small-Cap 600 increased 5.43%

Source: S&P Global. All performance as of July 31, 2023

All eleven S&P 500 sectors were up, as returns broadened. Energy was in the lead adding 7.28% for the month. Communication services was next, adding 6.74%. The top ten issues added 34.4%, significant compared to a few months ago when eight issues accounted for all the gains.

Bond Markets

The Smart Investor

It’s the back half of the year. Some of the uncertainty around rates is resolved, the economy is looking up, and the equity markets are in positive territory. The last days of summer are here, and back-to-school has started rolling through the country.

Here's what you should focus on:

If you’re going to have to start paying back student loans in October, it’s time to start planning. Revisit your budget, and scale back where needed. Are you eligible for a repayment plan? How about refinancing?
High rates are still with us. Are you taking advantage and moving cash balances into money markets or CDs?
Fall means we are heading towards the end of the year. Make a list of the things you need to do in 2023 for tax or savings reasons: 401(k)s or IRAs, HSAs, and charitable giving should be at the top of your list.

Even though people seem pretty confident about the economy, it's important to remember that there's still work to be done to control inflation and keep the economy on track. Make sure your financial plans are aligned with your goals and any big changes happening in your life.

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The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA

Alchemist Wealth, LLC is registered as an Investment Adviser with the State of Ohio and only provides advisory services in states where registered or otherwise exempt from registration. All information provided herein is for educational and informational purposes only and should not be viewed as investment advice. Any links to third party information or data are believed to contain accurate information at the time of publishing.

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