It has been a dismal October with Treasury yields surging to multiyear highs and the S&P 500 benchmark set to close out its third-straight negative month. The tech-heavy Nasdaq has declined more than 3% month to date, and is also on pace for its third negative month in a row.
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The “Magnificent Seven” used to refer to the 1960 Western film featuring Yul Brynner, Steve McQueen, Charles Bronson, and 4 other leading men of the day.

​But stock market investors in 2023 recognize the term as the set of seven big tech stocks, namely Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla. It so happens they occupy the top spots in the S&P 500 index, as well as the Nasdaq. 

September is poised to deliver the S&P 500’s worst monthly performance of 2023 -- a 5% drop.

​The Nasdaq Composite is down 6.5% with big-cap tech names taking it on the chin (Apple down 10%, Nvidia – darling of AI – down 11%, Netflix down 14%). Even the stalwarts of the Dow Jones Industrial Average are down a collective 3.4%
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Hedges have been hard to come by: the long-duration bond fund TLT lost almost 7% for the month; the gold fund GLD clipped for 4%. One bright spot -- the U.S. Dollar. 

Last month’s newsletter had this: “While historical stats favor an advancing bull through the end of the year, a 5-7% pullback in the coming weeks/months would not surprise many market analysts.” Those ‘many market analysts’ probably didn’t see it coming in hours/days. But that’s pretty much what happened.

It started on just the second day of the month. American credit rating agency Fitch Ratings downgraded U.S. debt to AA+ from the highest AAA. In the process, it delivered a dressing down to the U.S. political system and the country’s fiscal policy, citing “a steady deterioration in standards of governance.”
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Predictably, markets slumped, with the Nasdaq falling more than 2%, logging its worst day since February. 

​As anticipated, the Federal Reserve pushed its key policy rate to a 22-year high last week with another 0.25% interest rate hike. But investors are betting that might be it for a while.

​July delivered data showing U.S. consumer sentiment rising and inflation easing, adding to growing optimism that the economy will avoid a recession and encourage the Federal Reserve to end its cycle of interest rate increases. 

​Midway through the month, the S&P 500 finally exited out of the longest bear market since 1948.

​That doesn’t mean it’s reached new highs, only that the benchmark index closed up more than 20% off the low it hit last October, entering the classic definition of bull market territory – or at least the definition of some market participants. 

As If On Cue…

The investing world has been consumed this past month with talk of debt ceiling negotiations and artificial intelligence.

Debt Ceiling and Default
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With market anxiety increasing daily as the deadline toward a default grew closer, President Biden and House Majority Leader McCarthy reached a consensus Saturday evening to increase the country’s debt ceiling in return for [see fine print, somewhere]. Congress is expected to read said fine print and vote on the proposed legislation as early as Wednesday. 

On April 20, the most powerful rocket ever built experienced a "rapid unscheduled disassembly" four minutes after lift-off. That’s the euphemism preferred by Elon Musk’s Space X to describe their Starship being consumed by an orange and white fireball.
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Rockets weren’t the only thing barreling toward a blowup in April. On the 11th, Bloomberg said this about the market: “Cracks in 2023’s equity advance are appearing, as hedge funds and other speculators amass the deepest short position since November 2011 when the US sovereign credit rating was cut.” 

It started with an arguably dumb decision at Silicon Valley Bank. Put an unholy amount of long-duration bonds into the portfolio at the most inopportune time – just prior to the Fed’s interest rate thrill ride. Rates go up, value of bonds plummet. To meet the demands for routine withdrawals, sell bonds at a big loss.

No problem. Announce the raising of $2.25 billion in public and private offerings to shore up balance sheet. But that idea didn’t sit well with a few depositors, and they withdrew their money and then, of course, tweeted about it.
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Big problem. The ensuing run on the bank brought it to its knees overnight. 

​If we were off to the races in January, February put the brakes to that. In this topsy-turvy market, nothing sucks the life out of a rally quite like good economic news. And we got some. 

The Good News

• Consumer spending surged 1.8% in January from the previous month, with retail sales showing the biggest increase in nearly two years. And consumer spending drives the economy, so that’s good. Right?