Portfolio Manager Commentary

November 1, 2023

The Portfolio Manager Commentary is provided by Trustmark’s Tailored Wealth Investment Management team. The opinions and analysis presented are accurate to the best of our knowledge and are based on information and sources that we consider to be reliable and appropriate for due consideration¹.

Economic Outlook

U.S. Industrial Production was up 0.30% in September after having been flat in August. Capacity Utilization was a reasonably strong 79.7%. Retail Sales were up 0.70% in September after having been up 0.80% in August. The Index of Leading Economic Indicators was down 0.70% in September versus having been down 0.50% in August. The PCE Deflator (a measure of inflation) was up 0.36% for September and up 3.40% year over year. The Chicago Purchasing Managers Index was still in contractionary territory at 44.0 for October, which was relatively flat versus September. The University of Michigan Sentiment data came in at 63.8 for October versus 63.0 for September. Finally, New Single-Family Home Sales came in at a 759,000 unit level in September versus a 676,000 unit level for August.

Fixed Income

The U.S. Treasury Yield Curve remains inverted, however this inversion has begun flattening somewhat, with the 10-year yield at 4.51%, 36 basis points below the 2-year yield of 4.87%. The U.S. Treasury Yield Curve has now been inverted for 15+ months. At its recent September meeting, the FOMC left the Federal Funds target rate range at 5.25% - 5.50%. The FOMC kept rates in this band in its October/November meeting. The three-month and six-month U.S. Treasury Bills currently yield in a range of 5.40%-5.49%, which is within the range of the FOMC’s current Fed Funds rate target.

Yield Curve

Current Generic Bond Yields

Equity

US equity is down for the month as the S&P 500 index falls -2.17% and, by definition, enters correction territory with the large cap index dropping more than 10% from their July peaks. The narrative continues to be surrounded by the unrelenting rise in Treasury yields, the market coming to grips with the idea of a higher for longer Fed rate, and geopolitical uncertainty. Though stocks have had a history of looking past geopolitical events, the possibility that the situation could swell continues to be an overhang for the market (Factset Research Systems).

Overall market breadth continues to struggle as the equal-weighted S&P 500 is down -2.44% year-to-date, 13.03% less than the cap-weighted S&P 500 (+10.59%). Technology (+32.63%) and Communication Services (+35.72%) continue to lead as Utilities (-13.14%), Health Care (-7.17%), and Staples (-7.16%) vastly lag the market.