Investment Commentary – August 30, 2023
Year to Date Market Indices as of August 30, 2023
• Dow 34,920 (5.57%)
• S&P 4,509 (17.70%)
• NASDAQ 13,973 (33.51%)
• OIL $79.75 (-0.94%)
• Barclay Bond Aggregate (1.15%)
• Gold $1,971 (7.73%)
JP MORGAN THOUGHT OF THE WEEK: While last week’s August flash mfg. and svcs. PMIs both showed a decline and durable goods orders fell 5.2% in July; the economy still appears to have momentum.
Earlier this year, investors largely anticipated that U.S. economic activity, specifically capital spending, would slow due to the lagged impact of tighter monetary policy. Instead, however, the economy has remained resilient and real nonresidential fixed investment grew 4.6% y/y in 2Q, largely driven by spending on structures and intellectual property. Capital spending is being challenged by high vacancies in the office sector, softening manufacturing activity and the Hollywood writers’ strike. Nevertheless, the AI boom, recent fiscal policy incentives and solid demand for warehouses and green buildings remain areas of opportunity for intellectual property and structures investment. As shown in this week’s chart, capital spending appears to be entering a new era focused more on intellectual property spending, which is currently benefiting from the AI boom and is also less sensitive to interest rates than physical investment spending. From 2020 this type of investment has been the largest percentage share of GDP for all nonresidential fixed investment components and currently accounts for 5.5% of GDP.
Clearly brains are becoming more favored relative to brawn when it comes to investment spending, so what does this mean for investors today? While last week’s August flash mfg. and svcs. PMIs both showed a decline and durable goods orders fell 5.2% in July; the economy still appears to have momentum. Provided businesses continue to boost investments in intellectual property, the economy should become less sensitive to rates, which, in turn, should benefit equity markets.
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.
https://www.marketwatch.com/ (Market Indices)
https://www.jhinvestments.com/weekly-market-recap (Around the Web & Upcoming Events)
https://finviz.com/groups.ashx (YTD Performance Chart)