The third-quarter was a downbeat period for investors, mainly due to rising rates. A cooling U.S. economy, falling consumer confidence, real estate crisis in China, a series of bank downgrades also made matters worse for Wall Street. However, all were not downbeat for the broader market as there were ebbing U.S. recession fears along with several upbeat economic data points and a decent Q2 earnings season.
The S&P 500 (down 2.8%), the Dow Jones (down 1.7%), the Nasdaq (down 3.7%) and the Russell 2000 (down 5.5%) – all four key U.S. equity gauges have slumped in the third quarter (as of Sep 27, 2023) (read: ).
Against this backdrop, below we take a look at the key financial developments of the period.
Hawkish Fed
The Federal Reserve, in its latest meeting, enacted one rate hike worth 25 bps in July and kept interest rates steady at a 22-year high in the range of 5.25% to 5.5% but signaled one more hike this year. Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong and the unemployment rate has remained low. Though inflation is easing, it remains elevated and above the Fed’s 2% target. Hence, interest rate hedge ETF (PFIX - Free Report) has added about 50% in the past three months.
A Surge in Oil Prices
Oil prices remained at a solid shape due to reduced supplies and ebbing U.S. recession fears. Oil futures touched a fresh 2023 high of more than $95 on Sep 27 after inventories at the largest storage hub in the United States dropped toward levels nearing operational minimums. The rise in prices has led to speculation of $100 per barrel oil in the coming months, as quoted on Yahoo Finance.
Saudi Arabia prolonged its voluntary one-million-barrel oil supply cut through to the end of the year. Russia too has moved to draw down global inventories and vowed to cut oil exports by 300,000 barrels per day until the end of the year. The dual factors boosted oil prices lately.The WTI crude ETF(USO - Free Report) gained more than 35% in the past three months (read: Oil to Hit $100 Soon? Country ETFs to Benefit/Lose).
AI Boom Fizzles a Bit Due to Higher Rates
The technology sector made a solid comeback in the first half of 2023, buoyed by artificial intelligence (AI) craze and a rise in so-called “magnificent seven” stocks. These trades fizzled in the third quarter as bets for higher interest rates for a longer period rose (read: Inverse ETFs to Play If Nasdaq Slumps Ahead).
Wedbush analyst Dan Ives believes that the technology sector is poised to weather a prolonged phase of increased interest rates. And many are still considering that the current situation is the time to buy the dip in AI stocks. AI Powered Equity ETF (AIEQ - Free Report) has lost 4.5% in the past three months.
Landmark Legal Victory for Bitcoin
One of the most significant developments in 2023 for the Bitcoin ecosystem was the legal victory in the U.S. Court of Appeals for the D.C. Circuit, involving Grayscale and the U.S. Securities and Exchange Commission (SEC) on Aug 29.
The court sided with Grayscale in its lawsuit against the SEC's denial of the company's application to convert the Grayscale Bitcoin Trust into an ETF. This decision is not only a win for Grayscale but also sets an example that could impact other companies seeking to launch Bitcoin ETFs, including industry giants like BlackRock and Fidelity.
China Stocks Take a Dive on Real Estate Woes
China stocks hit a high in late July only to record a slump in August. A slump in the manufacturing sector and most importantly, chaos in the real estate market led to the chaos in the China’s equity market. Despite a series of measures implemented to stabilize the markets, the selloff in Chinese stocks has persisted mainly due to the real estate crisis. While default fears of bond payments by developer Country Garden are mounting, China’s property giant Evergrande has filed for U.S. bankruptcy protection. iShares China Large-Cap ETF (FXI - Free Report) lost about 4.5% and China real estate ETF has slumped 11.3% in the past three months.
Uranium Prices Hitting a High
Interest in nuclear power is on the rise, with uranium prices hitting their highest in over a year. Growing energy concerns and the increasing need for dependable and eco-friendly energy sources are fueling the surge in uranium ETF. The ability of nuclear power to cut carbon emissions has brought it back into the public eye.
While new reactors have come online, many existing reactors are extending their operating licenses, and old reactors are restarting, supply has become a big challenge. No wonder, Sprott Junior Uranium Miners ETF (URNJ - Free Report) added 43.9% in the past three months.
