August market weakness extended into September, driven by concerns regarding Federal Reserve policy and the potential for a U.S. government budget standoff. The S&P 500 index experienced a significant 4.87 percent decline during September, with the majority of this drop occurring after the Federal Open Market Committee (FOMC) meeting on September 19-20, 2023. Despite the Federal Reserve maintaining steady interest rates, they revised their predictions, anticipating interest rates to be 50 basis points (0.50 percent) higher at the close of 2024 and 2025 compared to their assumptions just three months prior.
We choose to use the term “prediction” deliberately, given the Fed’s track record of inaccurate forecasts. This has eroded market confidence in the institution, exemplified by the 10-year U.S. Treasury rates, which climbed from 4.09 percent at the end of August to 4.59 percent by September’s close, marking the highest levels since August 2007.
Meanwhile, West Texas Intermediate (WTI) oil prices surged to $95 towards the end of September, a staggering 40 percent increase since June. This jump was fueled by supply cuts from Russia and Saudi Arabia, stoking concerns of an impending imbalance in the oil market.