<div class="entry-content">This year, American stocks have distinguished themselves as the standout performers among key asset classes, according to data from a range of proxy ETFs up to the close on October 6. However, as we approach the fourth quarter, maintaining an optimistic view on U.S. equities may become increasingly difficult due to emerging risk factors.
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<p>* The U.S. <a href="https://www.cbsnews.com/news/hamas-attack-israel-secretary-austin-american-aircraft-carrier-group-eastern-mediterranean/">deployed</a> an aircraft carrier group to the eastern Mediterranean following the attack on Israel.<br/>* Oil prices <a href="https://www.bbc.com/news/business-67050612">increased</a> after the Hamas offensive on Israel.<br/>* OPEC <a href="https://www.cnbc.com/2023/10/09/oil-opec-raises-global-crude-demand-outlook-through-to-2045.html">adjusted</a> its long-term oil demand forecast upward.<br/>* Analysts are <a href="https://www.morningstar.com/markets/markets-brief-will-bond-yields-top-5">considering</a> the likelihood of rising Treasury yields.<br/>* Private-credit firms are becoming a <a href="https://www.wsj.com/finance/fed-rate-hikes-lending-banks-hedge-funds-896cb20b">significant source</a> of corporate lending in America.<br/>* Bank stocks are <a href="https://www.wsj.com/finance/banking/higher-rates-have-bank-stocks-on-the-mat-5e1d27a2?mod=hp_lead_pos4">under pressure</a> due to rising interest rates.<br/>* A strong boost in September U.S. payrolls is likely to <a href="https://finance.yahoo.com/news/fed-lean-toward-another-rate-134342052.html">encourage</a> the Fed to consider another rate hike:</p>
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<p><a href="https://www.amazon.com/Economics-America-Immigrant-Economist-Inequality/dp/0691247625?keywords=Economics+in+America%3A+An+Immigrant+Economist+Explores+the+Land+of+Inequality&qid=1696431100&s=books&sr=1-1&linkCode=li2&tag=thecapitalspe-20&linkId=8f918be2ca87ade6b86b3285640db23d&language=en_US&ref_=as_li_ss_il" target="_blank" rel="noopener"><img decoding="async" class="alignleft" src="https://ws-na.amazon-adsystem.com/widgets/q?_encoding=UTF8&ASIN=0691247625&Format=_SL160_&ID=AsinImage&MarketPlace=US&ServiceVersion=20070822&WS=1&tag=thecapitalspe-20&language=en_US" border="0"/></a><img decoding="async" style="border: none !important; margin: 0px !important;" src="https://ir-na.amazon-adsystem.com/e/ir?t=thecapitalspe-20&language=en_US&l=li2&o=1&a=0691247625" alt="" width="1" height="1" border="0"/>● <a href="https://amzn.to/3PG0OsU">Economics in America: An Immigrant Economist Explores the Land of Inequality</a><br/>Angus Deaton<br/><strong><a href="https://www.npr.org/sections/money/2023/09/26/1199422599/a-nobel-prize-winning-immigrants-view-on-american-inequality">Review</a> via NPR</strong><br/>Deaton (and Case) discuss the concerning rise in deaths of despair among non-college-educated Americans, who represent nearly two-thirds of the adult population. They attribute this trend to declining economic prospects, emphasizing that the “decline of good jobs” is a significant factor fueling despair. Deaton notes that this decline, exacerbated by globalization and technological changes (like automation), is aggravated in the U.S. by high healthcare costs. Additionally, he highlights that the American safety net is less robust compared to other wealthy countries when people face difficult circumstances.</p>
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<p>The current bear market in Treasury bonds ranks among the worst in history. Nevertheless, certain sectors within the fixed-income market are showing resilience based on year-to-date performance data for a selection of fixed-income ETFs through October 5.</p>
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<p>* The decline in Treasury bond prices since 2020 is among the <a href="https://finance.yahoo.com/news/collapse-treasury-bonds-now-ranks-223540520.html">worst ever recorded</a>.<br/>* China's economy <a href="https://www.cnn.com/2023/10/06/economy/china-economy-real-estate-crisis-intl-hnk/index.html">faces</a> prolonged struggles due to its real estate crisis.<br/>* Over 40% of small businesses <a href="https://www.wsj.com/articles/america-still-has-a-worker-shortage-d0c65166">report</a> difficulties in hiring.<br/>* Oil prices are poised for their <a href="https://oilprice.com/Energy/Energy-General/Oil-Prices-Set-For-Their-Sharpest-Weekly-Drop-In-Six-Months.html">largest weekly drop</a> in six months.<br/>* The average mortgage rate in the U.S. has climbed to a <a href="https://www.investopedia.com/average-mortgage-rate-highest-since-2000-8348183">23-year high of 7.49%</a>.<br/>* Exxon Mobil is closing in on a deal to <a href="https://www.wsj.com/business/deals/exxon-mobil-closing-in-on-megadeal-with-shale-driller-pioneer-31b4092e">acquire</a> shale driller Pioneer.<br/>* A narrowing of the U.S. trade gap in August <a href="https://wellsfargo.bluematrix.com/links2/html/197aabd0-b121-45c2-a097-0c9909b96640">is expected</a> to support third-quarter GDP growth.<br/>* U.S. jobless claims <a href="https://apnews.com/article/unemployment-benefits-jobless-claims-layoffs-labor-4d8ad9a09871e78c9dbf568c145903f2">remain low,</a> indicating strength in the labor market in the near term:</p>
<div class="entry-content">Just when it seemed that the soft-landing narrative was solidifying, the bond market has introduced new uncertainties. The evolving risk landscape surrounding the U.S. business cycle continues to shift. Are the current conditions truly different from the past?
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<p>* The risk of a hard landing for the U.S. economy is <a href="https://finance.yahoo.com/news/fed-bid-avoid-recession-tested-090001086.html">growing</a> as Treasury yields continue to rise.<br/>* Increasing interest rates <a href="https://www.wsj.com/economy/central-banking/rising-interest-rates-mean-deficits-finally-matter-74249719?mod=hp_lead_pos1">pose</a> a significant challenge for deficit management.<br/>* A stock market crash could be the <a href="https://finance.yahoo.com/news/only-stocks-crash-rescue-bond-012526214.html">only solution</a> to mitigate a declining bond market, according to Barclays.<br/>* The Earth is on track to have its hottest year on record, <a href="https://www.npr.org/2023/10/05/1203821716/earth-is-on-track-for-its-hottest-year-yet-according-to-a-european-climate-agenc">as predicted</a> by a European climate agency.<br/>* The ISM Manufacturing Index <a href="https://finance.yahoo.com/news/us-sector-slows-modestly-september-140315061.html">declined slightly</a> in September, signaling moderate growth.<br/>* U.S. private employment growth <a href="https://www.haver.com/articles/adp-employment-increase-disappoints-in-september">slowed considerably</a> in September according to ADP data:</p>
<div class="entry-content">As interest rates rise, the optimistic “soft landing” outlook for the U.S. economy faces potential threats. Nevertheless, the forthcoming preliminary third-quarter GDP estimate is expected to reveal an uptick from the second quarter.
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<p>* The House has ousted its speaker, <a href="https://thehill.com/homenews/house/4236607-house-makes-history-removes-mccarthy-as-speaker/">resulting in turmoil</a> within the chamber.<br/>* Escalating Treasury yields <a href="https://www.wsj.com/economy/central-banking/bond-selloff-threatens-hopes-for-economys-soft-landing-80bb152a?mod=hp_lead_pos1">jeopardize</a> the “soft landing” prospects for the U.S. economy.<br/>* Two Federal Reserve officials have indicated that <a href="https://finance.yahoo.com/news/two-fed-officials-warn-rates-to-remain-high-for-some-time-131353962.html">interest rates are likely to remain elevated</a> for the foreseeable future.<br/>* U.S. auto sales <a href="https://www.cnn.com/2023/10/03/business/us-new-car-sales/index.html">increased</a> in the third quarter, despite strikes and higher interest rates.<br/>* The UN trade division <a href="https://www.cnbc.com/2023/10/04/expect-stalling-and-divergent-global-growth-un-trade-arm-warns.html">forecasts</a> a “stalling and divergent” global economy.<br/>* Saudi Arabia has announced that its oil production cuts will extend through the end of the year.<br/>* The U.S. job openings <a href="https://www.bloomberg.com/news/articles/2023-10-03/us-job-openings-unexpectedly-increased-to-9-61-million-in-august">unexpectedly rose</a> in August:</p>
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<p>The expected return for the Global Market Index (GMI) has shown a gradual increase in September compared to the <a href="https://www.capitalspectator.com/total-return-forecasts-major-asset-classes-5-september-2023/">previous month.</a> The revised long-term forecast for this benchmark—a market-value-weighted portfolio that encompasses all <a href="https://www.capitalspectator.com/major-asset-classes-september-2023-performance-review/">major asset classes</a> (excluding cash) through ETF proxies—has risen to an annualized return of 6.7%, the highest recorded yet this year.</p>
