Navigating Economic Trends: Financial Performance Amidst Persistent Inflation and Elevated Interest Rates…

Week In Review – September 1, 2023

Navigating Economic Trends: Financial Performance Amidst Persistent Inflation and Elevated Interest Rates

Financial markets continue to closely monitor the direction of inflation, economic activity, and Federal Reserve Policy. In the past week, data has been released on employment openings, the latest changes in personal consumption expenditure, and Federal Reserve Chairman Powell elaborated on Fed policy at the group’s annual meeting at Jackson Hole.

In terms of economic activity, employment activity shows a moderation in unfilled job openings and a decrease in filled jobs. While suggestive of slower economic activity as employers pull back on growth initiatives, job openings remain high and job growth is healthy from a longer-term historical perspective, indicating a healthy moderation from the high levels seen following covid recovery in late 2021 and 2022.

Continuing to exhibit moderation on a year-over-year basis, the personal consumption expenditures (PCE) price index, considered to be the Fed’s preferred inflation gauge, increased by 3.3% in July compared to the previous year, meeting the anticipated 3.3% rise. Excluding the volatile food and energy components, the core PCE price index also grew by 4.2% in July, year-on-year in July, aligning with estimates.

While continuing the trend of lower growth year-over-year, the data did show an uptick in expenditure driven by increased consumer spending on services, which increased 5.2% over 12 months, while consumption on goods dropped by 0.5%. The data for July also surpassed the June figures, partly due to year-over-year comparative data anniversaries involving peak inflation data from the previous year.

Coupling the data with the most recent Federal Reserve comments suggests that peak interest rates are likely near, if not already in place. A low probability is being attributed to another Federal Funds rate increase in September, along with a 50% chance of a further ¼ point increase in November. On the other hand, the case for holding rates higher for longer, as inflation remains well above the Federal Reserve’s goal of 2% and the job market remains healthy and more balanced, is now entrenched. Financial market implications suggest that bond yields should remain elevated compared to historic levels, and the potential for further multiple expansion driving higher valuations in the equity markets is likely limited.

Looking ahead, financial performance will likely be contingent on the direction of economic growth, as consumers and businesses navigate inflation and interest rates that appear poised to remain structurally higher than those of the past two decades.

Pallas Capital Advisors will continue to monitor the investment landscape and look to position portfolios to navigate through the current environment while keeping on course with the long-term goals of our clients.

Important Disclosure:

The information contained herein is for informational purposes only, is not personalized investment advice and should not be construed as a recommendation to purchase or sell any particular security, sector or strategy to any individual person or entity. The decision to review or consider the purchase or sale of any security, sector or strategy mentioned should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional. Past performance should not be considered as an indicator of future results. Investment Advice offered through Pallas Capital Advisors LLC, a registered investment advisor.

CRN23_81

Mark-Bogar

Mark A. Bogar, CFA®, CAIA®
Chief Investment Officer
Pallas Capital Advisors

Stephen Kylander

Stephen Kylander
Senior Portfolio Manager
Pallas Capital Advisors

Download PDF

The information contained herein is for informational purposes only, is not personalized investment advice and should not be construed as a recommendation to purchase or sell any particular security, sector or strategy to any individual person or entity. The decision to review or consider the purchase or sale of any security, sector or strategy mentioned should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional. Past performance should not be considered as an indicator of future results.

Investment Advice offered through Pallas Capital Advisors LLC, a registered investment advisor.

Subscribe to Our Weekly Insights

Braintree, MA

45 Braintree Hill Office Park Suite 201
Braintree, MA 02184
(781) 971-5052

Wakefield, MA

701 Edgewater Drive
Suite 140
Wakefield, MA 01880
(781) 587-3478

Portsmouth, NH

36 Maplewood Avenue
Portsmouth
NH 03801
(603) 292-3699

Park Ridge, NJ

1 Maynard Drive
Suite 2101
Park Ridge, NJ 07656
(551) 277-2686

Newport, RI

51 Long Wharf Mall
Newport, RI 02840
(401) 847-0505

Check the background of your financial professional on FINRA’s BrokerCheck.

The 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. Opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Pallas Capital ADVISORS is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Pallas Capital Advisors and its representatives are properly licensed or exempt from licensure. This website is solely for information purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Pallas Capital Advisors unless a client service agreement is in place.

Advisory services are only offered to clients or prospective clients where Pallas Capital Advisors and its representatives are properly licensed or exempt from licensure. This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Pallas Capital Advisors unless a client service agreement is in place.

The 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. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

We take protecting your data and privacy very seriously. As of January 1, 2020 the California Consumer Privacy Act (CCPA) suggests the following link as an extra measure to safeguard your data: Do not sell my personal information.