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McKnight Weekly Market Insights: Stocks Weather Summer Storm of News and Indicators

August 21, 2023

Happy Monday!

In this week's newsletter edition, we'll be talking about:

  • Inverted Yield Curve and Economic Predictions
  • Stock Market Performance and Economic Concerns
  • Strong July Retail Sales and Economic Outlook

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The inverted yield curve, where short-term bond yields exceed long-term bond yields, is often considered a reliable indicator of an impending recession, having preceded each U.S. recession in the past 50 years. Currently, the yield curve has been inverted for over a year, suggesting a potential recession. However, Pramod Atluri, an investment officer, challenges this view, arguing that the crucial factor today is high inflation, a rarity since the 1980s. As central banks work to curb inflation, the possibility of interest rate cuts arises, not due to an expected recession, but to achieve their 2% inflation target. Atluri suggests that once inflation stabilizes around 2%, the inverted yield curve might again become a credible predictor of economic decline and increased recession risk. The historical graph of 10-year and two-year U.S. Treasury yields further illustrates instances of inverted yield curves preceding recessions.

Click here to check out the most recent Market Monitor.

Last week, stock markets continued their August downturn due to increased yields and disappointing economic indicators from China, leading to negative investor sentiment. The Dow Jones Industrial Average declined by 2.21%, the Standard & Poor's 500 decreased by 2.11%, and the Nasdaq Composite index fell by 2.59% over the week. Similarly, the MSCI EAFE index, reflecting developed international stock markets, experienced a decline of 2.83%.

Rising Bond Yields and Economic Concerns Impact Stocks in August

Last week, escalating bond yields, propelled by robust economic figures and the disclosure of July's Federal Open Market Committee (FOMC) meeting minutes hinting at the possibility of further rate hikes, exerted downward pressure on stock markets. In a week marked by subdued trading typical of August, stocks were also influenced by a sequence of economic indicators indicating a faltering economic rebound in China and cautionary notes about potential credit rating downgrades for numerous U.S. banks by Fitch, a credit-rating agency. While the 10-year Treasury yield reached its highest point since October 2022 on Thursday, a Friday decrease in yields helped to mitigate the week's downward trajectory.

Strong July Retail Sales Bolster U.S. Economic Outlook

Retail sales surged by 0.7% in July, marking the fourth consecutive month of increased consumer expenditure on goods. This upward trend in consumer spending suggests the potential avoidance of an imminent U.S. recession. The report's positive data, underpinned by a resilient job market, has added complexity to the Federal Reserve's task of taming inflation while minimizing additional interest rate hikes. The diverse rise in consumer spending spanned various sectors, encompassing bars, restaurants, grocery and hardware stores, as well as back-to-school essentials like books and clothing; however, auto and electronics sales declined, potentially due to elevated borrowing costs.

"Every individual matters. Every individual has a role to play. Every individual makes a difference."

– Jane Goodall

Is it Time for a Paycheck Checkup?

There's no better time than the present to check your withholding status and make sure your paycheck accurately reflects the taxes you should be paying.

These paycheck checkups are a great practice when something happens in your life that may change your tax status, such as getting married or getting divorced, having a baby, getting a new job, or getting a raise or promotion at work. You can also adjust your withholding status if you want to change how much tax you withhold due to other circumstances.

During your paycheck checkup, you can also check other factors, such as how much you contribute to your health insurance or retirement plan. These expenses can also impact your tax liability.

*This information is not intended to substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov6

5-Minute Core-Strengthening Workout

Even if you only have a little time to dedicate to a core workout, this circuit will get you going and only takes 5 minutes. Here are the moves:

  • 1-minute high plank: Your hands are on the ground, your arms are straight, and you are holding your body up with your arms and a tight core.
  • 30-second side plank on each side: One hand is on the ground, your arm is straight, and the other is in the air. You can do a side plank with your feet stacked on each other (most demanding), your feet staggered (a little easier), or your bottom knee on the ground.
  • 1-minute boat poses: Your feet are in the air, and your arms are by your side, reaching to your feet. You can pose with your legs bent (easier) or straight out (harder).
  • 1-minute crunches: Lift your shoulders and upper back off the ground without pulling your neck.
  • 1-minute dead bug: Lay on your back and alternate, extending out the opposite arm and the opposite leg simultaneously.

Tip adapted from Mind Body Green Movement7

Which of these five words doesn’t belong on this list: that, what, cat, sat, chat. 


Last week’s riddle: A man tells a friend that he married three women yesterday, which was legal. In fact, it was routine. How can he make such a statement? Answer: The man is a Justice of the Peace.

Edinburgh, Scotland

Footnotes and Sources

1. The Wall Street Journal, August 18, 2023

2. The Wall Street Journal, August 18, 2023

3. The Wall Street Journal, August 18, 2023

4. CNBC, August 18, 2023

5. The Wall Street Journal, August 15, 2023

6., April 10, 2023 

7. Mind Body Green Movement, April 24, 2023

Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.

The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

Please consult your financial professional for additional information.

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG is not affiliated with the named representative, financial professional, Registered Investment Advisor, Broker-Dealer, nor state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.

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