Impact of Declining Interest Rates on the Equity Market | Episode 057 | 10-10-23

The surge in equity markets has not stemmed from a significant change in the geopolitical conflict, but rather due to a major drop in interest rates. Our Chief Investment Officer, Megan Horneman,  offers expert insights and analysis.

Megan covers the latest economic data, the NFI Small Business Optimism Index that hit a four-month low in September. She draws a parallel to the SVP Bank collapse, highlighting the declining confidence among consumers and business owners alike. It's a signal of economic headwinds for the rest of the year. Stay tuned for more economic and market data throughout the week.

Good morning. This is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today with a regular segment of Markets with Megan and we're going to break it apart today in two different segments. First of all, we want to talk a little bit about the market reaction that we've seen today. We talked yesterday about the initial market reaction to the crisis that's going on the Middle East. What we've seen today is another big rally in the equity markets. This isn't necessarily driven because there's been some major change in what's going on in the conflict in Israel and Hamas. It's primarily because we've seen a major drop in interest rates today. That is the flight to safety we didn't see yesterday because the bomb markets were closed. The 10-year Treasury, for example, dropped from a 4.80% all the way down to a 4.65% today. Many markets being driven by that drop in interest rates, not some major change in the economy or the geopolitical tensions. Let's jump right to the economic data that we got today. What we got today was the NFI Small Business Optimism Index. This fell to a four-month low in September. There were 582 different employers that were surveyed.

Some of the details within the report that we're focusing on those expecting credit conditions to deteriorate over the next six months. That's all another big increase. Again, credit conditions are tight. We've talked about this before. Another part of the report they suggested that it was harder to get loans compared to three months ago. That was the most amount of companies that has said that it was harder to get loans that we've seen since March of this year. Let's remember in March of this year is when SVP Bank collapsed. This is not a great report. It confirms everything we've been talking about. Confidence, not only for consumers but also business owners, is weakening just more headwinds for the rest of this year. We'll keep you updated the rest of this week with some more economic and market data. If you have any questions or comments, please feel free to reach out to podcast at Verdence dot com. Thank you,