Higher for Longer

Stocks finished the week broadly lower as markets started to build in assumptions for a 'higher for longer' rate path following the Fed’s policy decision meeting.

September 25, 2023

Performance for Week Ending 9.22.2023:

The Dow Jones Industrial Average (Dow) finished off 1.89%, the Standard & Poor’s 500 Index (S&P 500) lost 2.93% and the Nasdaq Composite Index (NASDAQ) fell 3.62%. Sector breadth was negative with all 11 S&P sector groups closing lower. The Consumer Discretionary (-6.35%) sector was the worst performer followed by Real Estate (-5.36%) and Materials (-3.69%).

Index* Closing Price 9/22/2023 Percentage Change for Week Ending 9/22/2023 Year-to-Date Percentage Change Through 9/22/2023
Dow 33963.84 -1.89% +2.46%
S&P 500 4320.06 -2.93% +12.52%
NASDAQ 13211.81 -3.62% +26.23%

*See below for Index Definitions

MARKET OBSERVATIONS: 9/18/23  – 9/22/23

Stocks finished the week broadly lower as markets started to build in assumptions for a 'higher for longer' rate path following the Fed’s policy decision meeting. A surprise decline in weekly jobless claims, which fell to a seven-month low of 201K, added to concerns that a tight labor market, rising energy prices and a resilient economy would stoke inflation pressures in the months ahead and compel the Fed to execute at least one more rate hike before year end.

FOMC Meeting: As widely expected, last week’s Federal Open Market Committee (FOMC) meeting ended with no change to the fed funds rate range of 5.25-5.50%. However, the move was viewed as a “hawkish pause” as the Fed left the door open for one additional rate hike by year-end. Twelve Fed officials penciled in one more 25 basis point hike, while 7 suggested no change. The so-called dot plot of forward projections showed that the group reduced the number of rate cuts in 2024 to 2 down from 4 cuts in the June dot plot, reflecting renewed strength in the economy and underscoring the Fed’s higher for longer message.

During the after-meeting press conference, Fed Chair Powell said that recent economic activity has been "solid" and that the full effects of the Fed's tightening campaign have not yet been fully felt. "Readings on consumer spending have been particularly robust," Powell added, noting that the labor market remains tight, and unemployment has barely risen from its recent lows below 4%. Powell also noted that inflation expectations remain "well-anchored," a key consideration as the Fed considers how high to raise rates and how long to maintain restrictive policy levels. During the Q&A session Powell said a so-called “soft landing” for the US economy is a primary objective for the central bank, but not baseline expectation. “Ultimately, this may be decided by factors that are outside our control by the end of the day. But I do think it’s possible,” Powell said. “I also think this is why we are in a position to move carefully.”

Summary of Economic Projections: There were some notable changes to the September Summary of Economic Projections (SEP). Economic growth was revised up from 1.0% to 2.1% this year and from 1.1% to 1.5% in 2024. Projections for the unemployment rate were revised down 0.3% this year to 3.8% and by 0.4% next year to 4.1%. Core PCE inflation was lowered 0.2% to 3.7% this year and kept unchanged at 2.6% in 2024. Core PCE is only expected to reach the Fed's 2% target by the end of 2026.

Will Seasonal Weakness Set the Stage for Better Times Ahead? Negative seasonal trends also remain a headwind, with the month of September living up to its reputation for being one of the worst months of the year. Over the past 25 years, September has produced an average loss of 1.3%, that’s more than double August, the second worst month of the year. (Note: month to date the S&P is off 4.16% through Friday). Over the past 3-years September has been a really tough month. Last year the S&P lost over 9%, in 2021 it fell 4.8% and was down 3.9% in 2020. The good news is that September typically sets the stage for better performance during the fourth quarter. In fact, the October through December period has been the best three-month window of the year, with the fourth quarter delivering average gains of 5.1% over the past 25 years (with positive performance 80% of the time).

Economic Roundup: Sales of previously owned US homes declined in August to the lowest since the start of the year, restrained by limited inventory and historically high mortgage rates. Contract closings fell 0.7% from a month earlier to a 4.04 million annualized pace, National Association of Realtors data showed. The number of homes for sale edged down to 1.1 million, the smallest August inventory in data back to 1999. At the current sales pace, it would take 3.3 months to sell all the properties on the market. Realtors see anything below five months of supply as indicative of a tight market. New US home sales also dropped in August to the lowest level since June 2020, highlighting the toll of declining housing affordability. Residential starts decreased 11.3% last month to a 1.28 million annualized rate. The drop was largely driven by a sharp decline in multifamily construction. Applications for building permits, a proxy for future construction, picked up to 1.54 million, the highest level in nearly a year. Mortgage rates rose for a second straight week, with the average rate for a 30-year fixed loan increasing to 7.19% from 7.18%, according to Freddie Mac. It’s the sixth straight week that the average rate has been above 7%.

The Week Ahead: The data calendar will be front and center in the upcoming week with Friday’s core PCE reading for August being the focal point. The report, which is the Fed’s preferred inflation gauge, is expected show prices growing at a 3.9% year-over-year pace, down from 4.2% during the month of July. Other economic reports of interest include new home sales, the Conference Board’s consumer confidence reading, durable goods orders, pending home sales, and personal income & spending. It will be a busy week for the Fed speaking calendar with seven events scheduled, including Fed Chair Powell on Thursday. On the earnings front, just seven members of the S&P 500 are scheduled to release results. The unofficial kick-off to third quarter earnings season will begin in earnest during the week of October 16.

— By Michael Schwager, Chief Market Strategist, Managing Director


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

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