Portfolio Manager Commentary

September 15, 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. Durable Goods Orders were down 5.2% in July versus having been down 5.2% in June. Industrial Production was up 0.4% in August versus +0.7% in July. Capacity Utilization remains moderately high at 79.7%. The Markit Purchasing Managers Index remains contractionary, at 47.9 for August. This matches the ISM Manufacturing Index which came in at 47.6 for August. The Markit PMI Services index, and the ISM Services Indexes, were both slightly expansionary, at 50.5 and 54.5, respectively for August. The U.S. Unemployment Rate was 3.8% for August, up from 3.5% in July. Average Hourly Earnings were up at an annual rate of 4.3% in August versus having been up at an annual rate of 4.4% in July. Producer Prices were up 0.7% in August, versus +0.4% in July. Consumer Prices were up 0.6% in August versus +0.20% in July. On a year-over-year basis, Consumer Prices were up 3.7%.

Fixed Income

The U.S. Treasury Yield Curve remains inverted, with the 10-year yield trading at 4.33%, 70 basis points below the 2-year yield of 45.03%. The U.S. Treasury Yield Curve has now been inverted for 15 months. At its recent July meeting, the FOMC increased the Federal Funds target rate by 25 basis points to 5.25% - 5.50%. The minutes of this meeting reflect that the FOMC remains strongly committed to keeping inflation down near 2.00% per year while maintaining full employment. The three-month and six-month U.S. Treasury Bills currently yield in a range of 5.40%-5.50%, which is within the range of the FOMC’s current Fed Funds rate target.

Yield Curve

Current Generic Bond Yields

Equity

US equity is lower for the month as the S&P 500 index is down -1.06%. All eyes continue to be on the Fed and inflation as August’s Core PPI is in line while retail sales and initial claims come in hotter than expected. The Fed is largely expected to hold policy rates at the current 5.25-5.50 level for the upcoming September meeting with a current 1/3rd chance of another rate hike near the end of the year, though this is completely data dependent. There have been observations of the disinflation theme slowing, though it is largely expected the slowdown will pick back up.

Not much has changed in the growth vs value narrative as growth (+22.21%) is outpacing value (+12.37%) +9.84% year-to-date. This is largely led by the three top sectors, Communication Services (+41.81%), Technology (+36.53%), and Consumer Discretionary (+34.03%). Health Care (-1.15%), Consumer Staples (-1.72%), and Utilities (-5.89%) are the few negative sectors for the year.