Last week was all about financial factors, primarily interest rates. But this week was all about the real economy, notably the United Auto Workers (UAW) strike and the pending government shutdown. Indeed, worries about a recession rose on those two risks. And while interest rates ticked up a bit, it was much less than last week and generally within a range. The same applies to financial markets as well.

We are getting close to the decision point on whether large parts of the government will shut down again because Congress has not passed a budget. While the Senate has come up with a plan, the House has not even been able to start considering one, which means the government will lack funding and will largely shut down, as of October 1. Given the dysfunction in Washington DC, at this point that shutdown looks likely, which means we must think through the consequences.

This week was all about interest rates. The yield on the 10-year U.S. Treasury rose to the highest level since 2007, topping 4.5 percent after running up from about 4.1 percent at the start of the month. That is a big jump, driven by a growing market realization that the Fed is serious about keeping rates higher for longer.

I thought this was going to be an easy week. Clearly, we would be talking about inflation, right? And we will, but we also should discuss the UAW strike and consumer confidence. So, let’s get right to it.

My colleague Sam Millette, director, fixed income on Commonwealth’s Investment Management and Research team, helped me put together this month’s Market Risk Update. Thanks for the assist, Sam! Let’s take a closer look.

What mattered this week? Well, on top of it being a short week, there simply wasn’t much happening. The one piece of economic data that mattered, the ISM Services survey, surprised to the upside. This result indicated that service businesses, on the whole, are not only still in expansion mode but are even feeling better. That is good news from an economic perspective and, on top of the last jobs report, signals that the economy continues to grow.

August saw modest market pullbacks across the board, as investors were nervous about risk. The U.S. indices were down by low single digits, with the Nasdaq doing the worst. International markets also pulled back—developed markets were down slightly more than U.S. markets, and emerging markets performed worst of all. Even fixed income declined, as higher interest rates drove the U.S. Aggregate Bond Index down slightly. Financial markets spent the month in a risk-off mode, hurting riskier investments like tech stocks and emerging markets at the expense of more boring ones.

My colleague Sam Millette, director, fixed income on Commonwealth’s Investment Management and Research team, helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam! Let’s take a closer look.

U.S. indices were down by low single digits in August, with the Nasdaq doing the worst. International markets pulled back, and fixed income was down. This market performance reflected the underlying economy. Business and consumer confidence slowed, while inflation showed signs of ticking up again.

With the end of summer drawing near, it has been a busy couple of weeks. We had the Fed’s annual conference in Jackson Hole and a whole bunch of economic data, including a new inflation release and the jobs report this morning. When we last talked, the markets were selling off. So, let’s look at where we are now and what mattered in the past couple of weeks.