Forty "W"ritings

In 3Q23, investors started to accept the reality of the “higher for longer” interest rate regime. The realization that central banks have not yet declared victory in the war on inflation and years of excessive borrowing by global governments fueled a surge in interest rates around the world. As a result, a modest valuation correction began in global equities as investors started to accept the “higher for longer” rhetoric that global central banks have reiterated time and time again. After the best start to a new year in the past four years (through 2Q23), the MSCI AC World Index posted its worst quarterly decline in a year, the 10-year U.S. Treasury yield rose to the highest level seen since 2007 and even Japan’s 10-year Government yield rose to a nine year high.

Key Takeaways - It has been more than two weeks since the unprecedented attacks on Israel. Global equities are lower amid geopolitical tensions. Treasury yields hovering at multi-decade highs. Gold takes over as leading safe-haven asset. Middle East conflicts can be inflationary.

Key Takeaways: Homebuilder confidence and sales fall further. Consumer surprisingly still spending. Leading indicators worst since Great Financial Crisis. Global equities lower on higher yields. 10YR Treasury flirts with 5% level, first time since 2007. Precious metals rally as investors seek out safe-havens.

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Quick Take - Global equities continued to rally in the second quarter. Outside the U.S., stocks in Europe and emerging-markets have also posted solid results. In fixed-income markets, core bond returns (Bloomberg U.S. Aggregate Bond Index) were slightly negative for the quarter as interest rates slightly rose/prices fell.

The Month At-A-Glance 1. The S&P 500 eked out a 0.4% gain despite concerns a deal would not be struck to increase the debt ceiling 2. Hype around artificial intelligence sent some growth stocks significantly higher 3. Market narrowness has reached historic levels—with only a handful of stocks accounting for all the market index return 4. Investors have started to price in a “higher for longer” outlook for interest rates