October 23, 2023
Higher U.S. rates were creating stress across markets. The 10-year Treasury yield moved near 4.9% and had reached 4.8% in September, its highest level since July 2007. A stronger dollar and higher U.S. rates also pressured countries with dollar-denominated debt, while global trade growth was expected to slow to 0.9% from 5.1% last year.
The Israel-Hamas conflict added an oil and inflation risk. If contained, the estimated impact was about $4 per barrel of oil, 0.1 percentage point lower global GDP, and 0.1 percentage point higher inflation. A proxy-war scenario implied oil up $8 and global GDP down 0.3 percentage points. A direct Israel-Iran war was modeled as oil up $64, volatility up 16 points, global GDP down 1.0 percentage point, and inflation up 1.2 percentage points.
Risk assets reflected the pressure. The S&P 500 was at 4,224.16, down 1.26%, the Dow was at 33,127.28, down 0.86%, and the Nasdaq was at 12,983.81, down 1.53%. WTI crude was $88.30, while the 10-year Treasury sat near 4.9%.
Rite Aid filed for Chapter 11, giving the company room to keep operating while restructuring obligations. The company had slowing sales, lawsuits, and too much debt, while CVS and Walgreens had shifted more aggressively into healthcare. Rite Aid reported a $410 million revenue decline and a net loss of $306.7 million after the second quarter, compared with a $110.2 million loss a year earlier. The DOJ also accused the company of dispensing thousands of illicit prescriptions, including Fentanyl and Oxycodone.
Consumers were still spending, but with tradeoffs. Retail sales rose 0.7%, and the retail control group rose 0.6%. At the same time, live entertainment and theme park costs rose sharply, with top North American tour tickets averaging $120.11 and Disney single-day tickets reaching $194.
Commercial real estate remained a banking risk. Office buildings represented 40.8% of outstanding distress, or $21.2 billion, and accounted for 93% of new distress. AI and chips added a separate long-term theme, with Goldman economists estimating generative AI could lift annual U.S. productivity by 1.5% within 10 years after broad adoption.