Market Commentary — August 14, 2023

Stocks were mixed last week in light end-of-summer trading. Investors were wrangling with positive news on the inflation front, while long-term rates continue to move higher. Value stocks outpaced growth names, and mega-cap tech names sold off on rising rate pressures. Healthcare stocks got a boost from weight loss diabetes drugs. And financials took a hit on Tuesday when rating agency Moody’s downgraded many small and mid-cap banks over concerns about commercial real estate exposure.

On Thursday, CPI inflation data saw an increase of 0.02% in July, which brought the YOY number to a tepid 3.2%. But CPI enthusiasm quickly gave way to July’s PPI number released on Friday which came in at 0.03%, a tick above projections. On a year-over-year basis, producer prices rose 0.8%, marking the first annual increase in the rate of producer price inflation in over a year. The 10-year bond yield remains above 4%, where it has been since the beginning of July.

Markets remain nervous that last month’s Fed interest rate hike, won’t be the last. The Fed did little to calm those nerves as Fed Governor Bowman suggested more hikes might be needed, while Phillie Fed President Harker and Richmond Fed President Barkin, communicated they were in favor of a pause.

Much of the buzz in ETF land is about the prospects for a spot Bitcoin ETF. Cathie Wood’s Ark 21Shares application decision was pushed out by the SEC. And the WSJ pronounced that “Index-Tracking ETFs Were All the Rage, Until Now”. While active funds from sponsors such as Dimensional, JP Morgan, Capital Group, and American Century have indeed gotten traction, it hardly portends the demise of passive investing. Actively managed ETFs have an average expense ratio of 0.70% according to VettaFi, vs. 0.16% for passive funds. And besides cost considerations, there is also the issue of active underperformance.

Sorry to miss you last week as I vacationed with my family in Kauai. My week in paradise was quickly overshadowed by the disaster that ensued the day after we left, in Maui. I am sure many of us are looking for ways to help our Maui Ohana. Here is a link to the many services organizations stepping in to help in the wake of this senseless tragedy.

Jane Edmondson
CEO and Co-Founder

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