Weekly Market Update | Week 42, 2023

Week 42 Key Talking Points

  • Higher rates, D.C. dysfunction, mixed earnings, and uneasy geopolitics are taking a toll on sentiment.

Geopolitical Update

The tinderbox that is the Middle East dominated the news this week. So far, a long-awaited Israeli ground assault on Gaza has yet to materialize but seems more likely every day. While the IDF has reportedly been given the “green light” to commence an assault, there are also reports that Israel may be reconsidering its approach.

President Biden’s visit to the region this week did not seem to accomplish much diplomatically, with the atmosphere roiled by competing narratives around a hospital blast in Gaza that US intelligence believes was not due to an Israeli strike. But while the world waits for the next shoe to drop, the impact on US equities has thus far been limited (though any sign of a wider escalation in the conflict could change that).

Instead, equities seemed much more in tune with the interest-rate atmosphere, with another week’s run-up in Treasury yields acting as a headwind. In remarks this week, Fed Chair Powell did give a nod to a prominent theme from other recent Fed speakers, that tighter financial conditions from higher long-term yields is an important factor to consider, though he also said the current backdrop is not too tight and that persistently above-trend growth could warrant additional Fed action.

In the end, however, this week’s flurry of Fedspeak did little but further firm expectations that rates may be at or near their peak. That said, the market is also gradually coming to terms with policymaker’s consistent “higher for longer” mantra and some are even weighing the possibility that rate cuts may not come until H2’24.

Overall, bears had a fair bit of ammunition for their stance this week, especially the uncertain geopolitical situation and higher rates. Added to this were a continued show of DC dysfunction amid an unending House speaker race, some minor deterioration in key earnings-beat metrics, and a number of higher-profile Q3 earnings disappointments.

But at the same time, Peak Fed remains a key pillar of the bullish argument, and takeaways from Powell’s appearance this week leaned dovish. The week also saw a notable pickup in M&A headlines, more indications of China policy support, and what could be contrarian buy signals from extreme bearish sentiment.

Equities + Treasuries

200-day moving average for the first time since March. Big tech was mostly lower, with TSLA (15.6%) and NVDA (9.0%) among the big drags. Airlines, credit cards, machinery, homebuilders, and pharma were some other weak spots. Entertainment (NFLX +12.7%), restaurants, energy, food/beverage, and HPCs held up better.

Treasuries were weaker again, with the 30Y yield moving firmly above 5% and the 10Y touching that level before retreating. The curve steepened again, with the 2/10 spread at one point moving to its least inverted point since last September.

The dollar was weaker on the major crosses. Gold +2.7% logged its second consecutive week of strong gains, moving back near $2,000/oz. Oil was also higher for the second straight week, with WTI settling up 0.4% as the market balanced the threat of a wider Mideast disruption with the US easing sanctions on Venezuela.

Economic Update

At the same time, some stronger economic data this week gave fuel to good-news-is-bad-news worries, though also played into soft-/no-landing hopes. Consumer resilience was on display with headline September retail sales coming in well ahead of consensus, with control-group sales also handily beating forecasts.

And labor-market strength continues to be reflected in light jobless claims data, which this week printed back below 200K for the first time since January. The October Philadelphia Fed manufacturing index remained in negative territory, though there was improvement in new orders and shipments. That said, there were more negative reports from September new-home sales and October NAHB homebuilder confidence.

Market + Stocks Update

Q3 earnings season started in earnest this week. Among the bigger names:

  • TSLA (15.6%) missed on most major metrics with analysts cautious on macro and materially weaker forward cash flow.
  • JNJ (2.5%) beat and raised with solid performance in pharmaceutical. 
  • PG +2.3% organic growth was ahead with pricing the main driver. 
  • BAC (1.7%) NII/NIM were stronger, though there were cautious views on fee income and rate-pressured deposit costs. 
  • NFLX +12.7% rallied after a big beat on paid net adds. 
  • ABT +6.5% highlighted strength in medical devices, with analysts also positive on expenses. 
  • UNP +1.7% beat and left FY guidance unchanged despite consumer-related volume softness. 
  • MS (6.0%) saw some weakness in IB, with higher credit costs a further point of concern. 
  • T +7.1% beat on FCF with postpaid churn and upgrade rates some other bright spots. 
  • LMT +0.7% beat with FCF a standout, though analysts also pointed to lower F-35 volumes.

Earnings activity will continue to accelerate in the week ahead, with 160 S&P constituents on the calendar.

In terms of economic data, the market will process new-home sales on Wednesday; Q3 GDP, durable-goods orders, and pending-home sales on Thursday; and September PCE on Friday. There will be no Fedspeak (in contrast to the recent blizzard of comments) with the Fed moving into its quiet period ahead of the Nov 1st FOMC meeting.

Next week we get data on New Residential Sales, Durable Goods, the 1st Estimate of 3rd Quarter GDP, and Personal Income.

Fixed Income

Yield Curve

July FOMC Statement    July Fed Minutes Balance Sheet Reduction Plan Credit, Liquidity and Balance Sheet    Federal Reserve Dot Plots  Treasury.gov yields    FOMC Policy Normalization Statement     Longer- Run Goals Jan 2022

Foreign Exchange Market

Energy Complex 

The Baker Hughes rig count was up 3 this week. There are 622 oil and gas rigs operating in the US – Down 147 from last year.

Metals Complex 

This Week’s Employment Picture 

Weekly Unemployment Claims Released Thursday 10/19/2023 – In the week ending October 14, the advance figure for seasonally adjusted initial claims was 198,000 down 13,000 from the previous week’s revised level. The 4-week moving average was 205,750 a decrease of 1,000 from the previous week’s revised average.

September Jobs Report BLS Summary Released 10/6/2023 – The US economy added 336k non-farm jobs in September and the Unemployment rate was unchanged at 3.8%. Average hourly earnings increased 7 cents to $33.88.  Hiring highlights include +70k Education and Health Services, +96k Leisure and Hospitality, and +73k Government.

  • Average hourly earnings increased 7 cents/0.2% to $33.88.
  • U3 unemployment rate was unchanged at 3.8%. U6 unemployment rate decreased 0.1% to 7.0%.
  • The labor force participation rate was unchanged at 62.8%.
  • Average work week was unchanged at 34.4 hours.

Job Openings & Labor Turnover SurveyJOLTSReleased 10/3/2023 – The number of job openings increased to 9.6 million on the last business day of August, the U.S. Bureau of Labor Statistics reported. Over the month the number of hires and total separations were little changed at 5.9 million and 5.7 million, respectively. Within separations, quits (3.6 million) and discharges (1.7 million) changed little.

Employment Cost Index Released 7/28/2023 – Compensation costs for civilian workers increased 1.0% for the 3-month period ending in June 2023. The 12-month period ending in June 2023 saw compensation costs increase by 4.5. The 12-month period ending June 2022 increased 5.1%. Wages and salaries increased 4.6 percent over the 12-month June 2023 and increased 5.3 percent for the 12-month period ending in June 2022. Benefit costs increased 4.2 percent over the 12-month period ending June 2023 and increased 4.8 percent for the 12-month period ending in June 2022. This report is published quarterly.

This Week’s Economic Data

Existing Home SalesReleased 10/19/2023 – September 2023 brought 3.96 million in sales, a decrease of 2.0% from August. The median sales price was $394,300. The current unsold housing inventory was 3.4 months of inventory.

Housing StartsReleased 10/18/2023 September housing starts came in at 1,358,000, 7.0% above the August estimate but is 7.2% below the September 2022 rate. Building permits were 4.4% below the August rate at $1,541,000 and 7.2% below the September 2022 rate.

Industrial Production and Capacity Utilization Released 10/17/2023 – Industrial production increased 0.3% in September and increased 2.5% for the third quarter. Utilities output decreased 0.3%. Manufacturing increased 0.4%. Mining increased 0.4%. Capacity utilization increased to 79.7% in September, in line with its long-run average.

Retail SalesReleased 10/17/2023 – Headline retail sales increased 0.7% in September and are up 3.8% above September 2022.

Recent Economic Data

Consumer Price Index Released 10/12/2023 – The Consumer Price Index for All Urban Consumers rose 0.4 percent in September on a seasonally adjusted basis, after increasing 0.6 percent in August. Over the last 12 months, the all items index increased 3.7 percent before seasonal adjustment.

Producer Price IndexReleased 10/11/2023 – The Producer Price Index for final demand increased 0.5 percent in September, seasonally adjusted. Final demand increased 0.7 percent in August. On an unadjusted basis, the index for final demand moved up 2.2 percent for the 12 months ended in September.

Consumer Credit Released 10/6/2023 – Consumer credit decreased at a seasonally adjusted annual rate of 3.8 percent in August. Revolving credit increased at an annual rate of 13.9 percent, while nonrevolving credit decreased at an annual rate of 9.8 percent.

U.S. Trade Balance Released 10/5/2023 The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $58.3 billion in August, down $6.4 billion from $64.7 billion in July. August exports were $256.0 billion, $4.1 billion more than July exports. August imports were $314.3 billion, $2.3 billion less than July imports. The August decrease in the goods and services deficit reflected an decrease in the goods deficit of $5.5 billion to $84.5 billion and an increase in the services surplus of $1.0 billion to $26.2 billion.

PMI Non-Manufacturing IndexReleased 10/4/2023 – Economic activity in the services sector expanded in September for the ninth consecutive month as the Services PMI® registered 53.6 percent, 0.9 percentage points lower than August’s reading of 54.5 percent.

U.S. Construction SpendingReleased 10/2/2023 – Construction spending during August 2023 was estimated at a seasonally adjusted annual rate of $1,983.5 billion, 0.5 percent above the revised July estimate of $1,973.7 billion. The August figure is 7.4 percent above the August 2022 estimate of $1,847.3 billion.

PMI Manufacturing Index Released 10/2/2023 – The September Manufacturing PMI registered 49.0 percent, 1.4 percentage points higher than the 47.6 percent recorded in August. Regarding the overall economy, this figure indicates a month of expansion following nine months of contraction. The New Orders Index remained in contraction territory at 49.2 percent, 2.4 percentage points higher than the figure of 46.8 percent recorded in August. The Production Index reading of 52.5 percent is a 2.5-percentage point increase compared to August’s figure of 50.0 percent.

Chicago PMIReleased 9/29/2023 – Chicago PMI remained in contraction territory in September decreasing to 44.1 points down from 48.7 points in August. The reading marked the 13th consecutive month of contraction in business activity in the Chicago region, and it was stronger than the previous month.

US Light Vehicle SalesReleased 9/29/2023 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.035 million units in August.

Personal Income Released 9/29/2023 – Personal income increased $87.6 billion (0.4 percent at a monthly rate) in August. Disposable personal income (DPI) increased $46.6 billion (0.2 percent). Personal consumption expenditures (PCE) increased $83.6 billion (0.4 percent).

Third Estimate of 2nd Quarter 2023 GDP Released 9/28/2023 – Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the second quarter of 2023, according to the “third” estimate released by the Bureau of Economic Analysis. The GDP estimate released today is based on more complete source data than were available for the “second” and “advance” estimates which had GDP increasing at 2.1 percent and 2.4 percent respectively. In the first quarter, real GDP increased 2.0 percent. The increase in real GDP reflected increases in consumer spending, nonresidential fixed investment, state and local government spending, private inventory investment, and federal government spending that were partly offset by decreases in exports and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased. The update primarily reflected a downward revision to consumer spending that was partly offset by upward revisions to nonresidential fixed investment, exports, and inventory investment. Imports, which are a subtraction in the calculation of GDP, were revised down.

Durable Goods Released 9/27/2023 – New orders for manufactured durable goods in August, up five of the last six months, increased $0.5 billion or 0.2 percent to $284.7 billion, the U.S. Census Bureau announced today. This followed a 5.6 percent July decrease. Excluding transportation, new orders increased 0.4 percent. Excluding defense, new orders decreased 0.7 percent. Machinery, up four of the last five months, led the increase, $0.2 billion or 0.5 percent to $37.8 billion.

New Residential SalesReleased 9/26/2023 – Sales of new single‐family houses in August 2023 were at a seasonally adjusted annual rate of 675,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 8.7 percent below the revised July rate of 739,000 but is 5.8 percent above the August 2022 estimate of 638,000. The median sales price of new houses sold in August 2023 was $430,300.  The average sales price was $514,000.  At the end of August, the seasonally adjusted estimate of new homes for sale was 436,000, a supply of 7.8 months at the current sales rate.

Consumer ConfidenceReleased 9/26/2023 – Consumer Confidence decreased for the second consecutive month in September to 103.0, down from 108.7 in August. Expectations fell back below 80, the level that historically signals a recession within the next year. Consumer fears of an impending recession also ticked back up, consistent with the short and shallow economic contraction anticipated for the first half of 2024. Consumers continued to be preoccupied with rising prices in general, and for groceries and gasoline in particular. Consumers also expressed concerns about the political situation and higher interest rates.


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Data Sources: 

Conference Board Economic Indicators   Bureau of Economic Analysis (BEA)   Congressional Budget Office (CBO)     U.S. Bureau of Labor Statistics (BLS)    Federal Reserve Economic Data (FRED Charts)

CME Fed Watch   U.S. Treasury – Yields   U.S. Census Bureau    Institute for Supply Management (ISM)    Weekly DOL Employment Data    BLS Monthly Jobs Report    JOLTS      All capital in one visualization 2020

US Energy Admn (EIA)   BLS Consumer Price Index CPI      BLS Producer Price Index PPIAtlanta Fed GDPNOW    NY Fed Nowcast GDP     US Census Bureau Housing Starts   U.S. Energy Admn

Consumer Credit  USCB Retail Sales   Construction Spending      Federal Reserve Dot Plots 2017   NY Empire Index    Philadelphia Federal Reserve   P/E Ratio Data -Yardeni Research

Technical Analysis Info: Koyfin.com  StockCharts.com – Financial Charts    Exponential vs Simple Moving Average

Other links: 1973 Arab Oil Embargo    Hunt Brothers Silver    Asian Contagion   Long-Term Capital bailout