THE STOCK MARKET
- If past performance is indicative of future results, and we are supposed to say it isn’t, seasonal factors will push the stock markets a little higher during the 4th quarter. Investors might not make up all of their losses from the 3rd quarter, but a little green ink is always a lot better than red.
CONSUMER SPENDING
- Consumer spending will likely slow from the 3rd quarter’s brisk pace. Initial indications are that so-called “aspirational” luxury expenditures have fallen, as upper quartile income earners regroup after a long-term spending spree.
INFLATION
- The official inflation gauges likely won’t get to the Fed’s preferred target of 2.0% for a while, perhaps a long while. While inflation for some goods has slowed considerably, the lack of housing inventory, a tight labor market and higher energy prices are keeping prices elevated a little more than the Fed would like.
HOUSING PRICES
- Despite higher mortgage rates, housing prices have remained firmer than many had predicted. This will continue into 2024 due to extremely low levels of existing home inventories. After all, if you sell your home, you have to buy another one.
ENERGY PRICES
- Crude oil, diesel, jet fuel and gasoline prices will continue to be higher than consumers would like unless OPEC and Russia have a sudden change of heart and increase production. For a number of reasons, many political, the United States simply is not able to produce enough crude oil, especially the heavy kind, on its own to drive down global energy prices.
GOVERNMENT SHUTDOWN
- The political parties in Washington will play around with yet another government shutdown. Any stoppage won’t be long lasting, and the Treasury isn’t going to default on its debt. As Yogi Berra might have said, it will be like déjà vu all over again.
STUDENT LOANS
- The resumption of student loan repayments likely won’t be as catastrophic to the economy as many feared, in However, it will likely be disastrous for many small business owners, especially food and beverage establishments, who cater to the younger demographic.
UKRAINE
- Domestic public support of Ukraine will continue to wane. The United States has enough problems of its own, and few people have a good grasp on exactly how the war there is progressing. Are we prolonging the inevitable or actually giving the Ukrainians a chance to win? The average American doesn’t know.
GLOBAL INDIFFERENCE
- If not by the end of the 4th quarter, then certainly by the end of 2024, it will become very apparent to Americans that Asia doesn’t care about the war in Ukraine and Europe doesn’t really care about a potential Chinese invasion of Taiwan. Further, South America and Africa don’t seem to care about either. So, can the U.S. really do it all alone?
NATIONAL DEBT
- Continued mismanagement of the public coffers in Washington will cause the nation’s debt service to mushroom. This will put a ceiling on Federal discretionary spending and U.S. fiscal policy moving forward.
INTEREST RATES
- Longer-term interest rates will stay “higher” for longer in the United States. This is due to the massive supply of U.S. Treasuries the markets will have to absorb moving forward coupled with the not-so-stunning realization that investors really do like positive real interest rates. Basically, if the Federal Reserve and Asia aren’t going to backstop the U.S. Treasury market at yields less than inflation, don’t expect domestic investors to do so.
BANK CONSOLIDATION
- Because of higher interest rates shrinking the market value of bond investments, and consequently bank capital, there will be significant consolidation in the financial industry, especially among minor firms. This could have an outsized negative impact on smaller towns, widening the wealth divide between urban and rural America.
COOLING GROWTH RATES
- After posting a surprisingly high headline GDP during the 3rd quarter of 2023, the U.S. economy will cool to a slower growth rate for the next several quarters.
This content is part of our quarterly outlook and overview. For more of our view on this quarter’s economic overview, inflation, bonds, equities and allocation read our entire 3rd Quarter 2023 Macro & Market Perspectives.
The opinions expressed within this report are those of the Investment Committee as of the date published. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders or employees.