Market Commentary — August 28, 2023

Markets treaded water last week, reacting to many mixed signals re: the economy and the Fed’s future path on monetary policy. Growth companies outperformed value, helped by a huge earnings beat by AI chipmaker Nvidia. Financials sold off after S&P downgraded 5 regional banks, citing commercial real estate lending concerns.

Several retailers reported last week, and it was a testimony to the bifurcation in retail. Nordstrom beat, Macy’s missed, and Dick’s Sporting Goods and Dollar Tree experienced inventory “shrink”. What is shrink? Shrink can be attributable to high levels of retail theft and/or poor inventory controls. Several retailers complained about shrink this quarter. Is shrink a symptom of consumer strain due to higher prices? Or maybe shrink is just another reason for retailers to drive more business online, supporting the shift to omnichannel. Read our new white paper on the shifting online retail landscape here.

The University of Michigan’s August reading of consumer sentiment did fall a bit from July’s nearly 2-year high thanks to a spike in summer gas prices, but overall the consumer remains strong, supported by higher income expectations. Weekly jobless claims came in at 320k, the lowest level in 3 weeks.

New home sales continue to defy high 7+% mortgage rates, with new home sales reaching the highest level since July of 2022.

And finally the elephant in the room – Jerome Powell’s comments from the Fed’s annual meeting in Jackson Hole. While his rhetoric seemed fairly hawkish, suggesting more rate hikes to come, he did acknowledge economic mixed signals, waxing poetically “we are navigating by the stars under cloudy skies.” That’s beautiful Chairman Powell, but I might add, you are also playing with fire. Still, long-term yields did back off 16-year highs last week, ending the week relatively unchanged with the 10-year at 4.24%.

So what’s the hot news in ETF land? According to data and research from ETFGI, ETFs raked in $87 billion last month as total assets hit $10.9 trillion. Equities took in the lion’s share of the assets with $51 billion of inflows versus only $26 billion for bonds in July. ETFGI’s Deborah Fuhr says it reflects “risk on” appetite.

What’s hot in ETFs? And actively managed ETFs continue to have disproportionate inflows, a trend that has continued since the beginning of the year. While the SPIVA data still shows that most active funds still underperform passive, active ETFs with lower fees may stand a better chance.

What’s not as hot? Inflows into ESG funds and ETFs fell 42% in the second quarter according to Morningstar. Sustainable fund inflows fell to about $18 billion from $31 billion in the first quarter, according to Morningstar’s latest sustainable funds report.

Tuttle Capital Management has closed its Tuttle Long Cramer Tracker ETF (LJIM), but its inverse version (SJIM) remains open. That stands for Short Jim, not Sorry Jim.

And in the latest in the saga of spot Bitcoin ETFs, the U.S. Court of Appeals for the District of Columbia has postponed its decision for Grayscale vs. the SEC, yet again. The next possible day for a verdict announcement is Tuesday, August 29th. In other news, ARK Invest 21 Shares has joined the filing queue to offer an Ethereum futures ETF.

In the week ahead we have more economic data to help the Fed “navigate”, including S&P Case Shiller home prices, a slew of other real estate and job numbers, and the Fed’s favorite inflation gauge, PCE (personal consumption expenditures).

Have a wonderful last week of summer as we hope all of this data helps convince the Fed to keep seas calm.

Jane Edmondson
CEO and Co-Founder

About

EQM Indexes LLC is a woman-owned firm dedicated to creating and supporting innovative indexes that track growth industries and emerging investment themes. Co-founded by Jane Edmondson, a former Institutional Portfolio Manager with more than 25 years in the investment industry.

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