Weekly Market Update | Week 48, 2023


Eleven Months Down, One To Go

Market Update

Banger of a month in the stock and bond markets! Both the Dow and the S&P gained over 9%. Every sector except energy was higher while Tech, Discretionary, Financials and Real Estate were all up Double Digits.  In Bond land, treasuries saw one of the best monthly performances on record, with the US Agg jumping 4.5% and corporate bonds up almost 6%. 

The dollar index was down 2.9%, falling to a three-month low. Gold was up 3.2% for the month and convincingly back above $2000/Oz . Brent and WTI crude were down 5% and 6% for the month, both well under $80/bbl.

The S&P 500 and Nasdaq both posted their biggest monthly gains since Jul 22’ while breaking three-straight monthly declines. Falling Rates were the key tailwind this month as the US bong agg had the biggest monthly gain since 1985, with the 2Y yield down -35 bp to around 4.70% and the 10Y yield down 55 bp to around 4.35%.

The rate rally also played into a significant easing of financial conditions, this helped spur growing optimism around the peak Fed, soft/no landing, and disinflation traction narratives. This month also saw a sharp dollar selloff as dollar index fell by the most in a year, while the VIX fell this month to the lowest level since before the pandemic.

A couple pieces were responsible for the big move in rates and confirmation of peak Fed and soft landing narratives. October payrolls growth of 150K came in below consensus and the prior two months saw net downward revisions of 110K, while this month saw continuing claims at the highest level since Nov-21. 

October CPI also seemed to confirm disinflation momentum with annualized core CPI the lowest since Sep 21’, while last Thursdays Core PCE (the Fed’s preferred inflation measure) fell to the lowest level since Mar-21. Falling energy prices also part of the story as WTI crude fell more than 6%, extending October’s near-11% decline and falling to the lowest levels since July.

The November FOMC meeting (Nov 1st) ended with no change in policy, while Chair Powell offered the status quo on messaging, saying the Fed isn’t thinking about rate cuts right now, and that there is still a long way to go to hit the 2% inflation target. However, since the meeting, this month saw a big shift in Fed policy path expectations. Markets are now pricing in a near-0% chance of a December rate hike, while expectations around 2024 rate cuts also accelerated. The market median year-end 2024 fed funds fell this month from an 18-Oct peak of 4.83% to 4.19% as of Thursday (29-Nov).

A potential pivot was also seen in Fedspeak, particularly comments from Fed Governor Waller, who said this week he’s increasingly confident that policy is well-positioned to slow the economy and get inflation back toward 2% target. Waller also said if inflation goes down, there is no reason to insist rates remain “really high,” and the Fed policy response should be to lower the policy rate. However, most other Fed officials continued with the higher-for-longer messaging, debating whether rates are high enough to bring inflation back to the 2% level and how long rates must remain sufficiently restrictive.

Positioning and sentiment were also a driver of this month’s upside. Recent EPFR flow data showed global stocks seeing a net $40B inflow in the two weeks to 21-Nov, the most since Feb-22. Buybacks were also a key tailwind this month with BofA noting this week that corporate buybacks were above seasonal levels for a third-straight week, including one that saw a record $4.8B bought. The improved sentiment was also seen in rallies in some of the more speculative areas of the market including crypto, meme stocks, profitless tech, and junk debt, which were among the hotter pockets of the market this month.

Q3 earnings season (mostly) wrapped up this month. Earnings growth forecasts for Q4 continued to fall this month, down to 2.9% from 8.0% as of 30-Sep, while this month brought more scrutiny around double-digit 2024 earnings growth rebound. However, some highlighted stable 2024 consensus earnings estimates, which was a piece of some of this month’s bullish strategist 2024 S&P price target introductions.

This coming week brings a number of economic data points including: Durable good orders, JOLTS, ISM Non-Manufacturing Index, PMI Services and don’t forget the last jobs report issued in 2023.

Fixed Income

Yield Curve

Nov FOMC Statement   September 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 625 oil and gas rigs operating in the US –Down 159 from last year.

Metals Complex 

This Week’s Employment Picture 

Weekly Unemployment Claims Released Thursday 11/30/2023 – In the week ending November 25, the advance figure for seasonally adjusted initial claims was 218,000 an increase of 7,000 from the previous week’s revised level. The 4-week moving average was 220k, a decrease of 500 from the previous week’s revised average.

October Jobs Report – BLS Summary  – Released 11/3/2023   The US Economy added 150k nonfarm jobs in October and the Unemployment rate was little changed at 3.9%. Average hourly earnings increased 7 cents to $34.00.  Hiring highlights include +89k Education and Health Services, +51k Government, and +23k Construction.

  • Average hourly earnings increased 7 cents/0.2% to $34.00.
  • U3 unemployment rate was little changed at 3.9%. U6 unemployment rate increased 0.2% to 7.2%.
  • The labor force participation rate was little changed at 62.7%.
  • Average work week decreased 0.1 to 34.3 hours.

Job Openings & Labor Turnover Survey – JOLTS – Released 11/1/2023 – The number of job openings was little changed at 9.6 million on the last business day of September, 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 5.5 million, respectively. Within separations, quits (3.7 million) and discharges (1.5 million) changed little.

Employment Cost Index Released 10/31/2023 – Compensation costs for civilian workers increased 1.1% for the 3-month period ending in September 2023. The 12-month period ending in September 2023 saw compensation costs increase by 4.3. The 12-month period ending September 2022 increased 5.0%. Wages and salaries increased 4.6 percent over the 12-month September 2023 and increased 5.1 percent for the 12-month period ending in September 2022. Benefit costs increased 4.1 percent over the 12-month period ending September 2023 and increased 4.9 percent for the 12-month period ending in September 2022. This report is published quarterly.

This Week’s Economic Data

U.S. Construction Spending – Released 12/1/2023 – Construction spending during October 2023 was estimated at a seasonally adjusted annual rate of $2,027.1 billion, 0.6 percent above the revised September estimate of $2,014.7 billion. The October figure is 10.7 percent above the October 2022 estimate of $1,830.5 billion.

PMI Manufacturing Index  Released 12/1/2023 – The November Manufacturing PMI registered 46.7 percent, unchanged from October. Regarding the overall economy, it continued in contraction for a second month after one month of weak expansion preceded by nine months of contraction The New Orders Index remained in contraction territory at 48.3 percent, 2.8 percentage points higher than the figure of 45.5 percent recorded in October. The Production Index reading of 48.5 percent is a 1.9-percentage point decrease compared to October’s figure of 50.4 percent.

Chicago PMI – Released 11/30/2023 – Chicago PMI moved into expansion territory for the first time in a year in November increasing to 55.8 points up from 44.0 points in October. The expansion follows 14 consecutive months of contraction in business activity in the Chicago region.

Personal Income  Released 11/30/2023 Personal income increased $57.1 billion (0.2 percent at a monthly rate) in October. Disposable personal income (DPI) increased $63.4 billion (0.3 percent). Personal consumption expenditures (PCE) increased $41.2 billion (0.2 percent).

Second Estimate of 3rd Quarter 2023 GDP – Released 11/29/2023 – Real gross domestic product (GDP) increased at an annual rate of 5.2 percent in the third quarter of 2023, according to the “second” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.1 percent. The GDP in the “second” estimate is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 4.9 percent. The update primarily reflected upward revisions to nonresidential fixed investment and state and local government spending that were partly offset by a downward revision to consumer spending. Imports, which are a subtraction in the calculation of GDP, were revised down. The increase in real GDP reflected increases in consumer spending, private inventory investment, exports, state and local government spending, federal government spending, and residential fixed investment that were partly offset by a decrease in nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Consumer Confidence  Released 11/28/2023 – Consumer Confidence increased in November following three consecutive months in decline, up to 102.0 from 99.1 in October. Expectations increased from 72.7 to 77.8. Despite this month’s improvement, the Expectations Index remains below 80 for a third consecutive month—a level that historically signals a recession within the next year.

New Residential Sales – Released 11/27/2023 – Sales of new single‐family houses in October 2023 were at a seasonally adjusted annual rate of 679,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 5.6 percent below the revised September rate of 719,000 but is 17.7 percent above the October 2022 estimate of 577,000. The median sales price of new houses sold in October 2023 was $409,300.  The average sales price was $487,000.  At the end of October, the seasonally adjusted estimate of new homes for sale was 439,000, a supply of 7.8 months at the current sales rate.

Recent Economic Data

Durable GoodsReleased 11/22/2023 – New orders for manufactured durable goods in October, down three of the last four months, decreased $16.0 billion or 5.4 percent to $279.4 billion, the U.S. Census Bureau announced today. This followed a 4.0 percent September increase. Excluding transportation, new orders were virtually unchanged. Excluding defense, new orders decreased 6.7 percent. Transportation equipment, also down three of the last four months, drove the decrease, $16.0 billion or 14.8 percent to $92.1 billion.

Existing Home Sales – Released 11/21/2023 – The Existing home slowdown continues with a slight improvement over last month. Existing home sales in October fell 14.6 year over year but that trend is actually improving.

Housing Starts Released 11/17/2023 – October housing starts came in at 1,372,000, 1.9% above the September estimate but is 4.2% below the October 2022 rate. Building permits were 1.1% above the September rate at $1,487,000 but 4.4% below the October 2022 rate.

Industrial Production and Capacity Utilization Released 11/16/2023 – Industrial production decreased 0.6% in October. Much of this decline can be attributed to a 10.0% drop in motor vehicle and parts production that has been affected by strikes within automobile manufacturers. Utilities output decreased 1.6%. Manufacturing decreased 0.7%. Mining increased 0.4%. Capacity utilization decreased to 78.9% in October, 0.8 percent below its long-run average.

Retail Sales Released 11/15/2023 – Headline retail sales decreased 0.1% in October and are up 2.5% above October 2022.

Producer Price Index Released 11/15/2023 – The Producer Price Index for final demand decreased 0.5 percent October, seasonally adjusted. Final demand increased 0.4 percent in September. On an unadjusted basis, the index for final demand moved up 1.3 percent for the 12 months ended in October.

Consumer Price Index Released 11/14/2023 – The Consumer Price Index for All Urban Consumers was unchanged in October on a seasonally adjusted basis, after increasing 0.4 percent in September. Over the last 12 months, the all items index increased 3.2 percent before seasonal adjustment.

Consumer Credit Released 11/7/2023 – Consumer credit increased at a seasonally adjusted annual rate of 0.4 percent in the third quarter. Revolving credit increased at an annual rate of 8.6 percent, while nonrevolving credit decreased at an annual rate of 2.4 percent. In September, consumer credit increased at an annual rate of 2.2 percent.

U.S. Trade Balance Released 11/7/2023  The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $61.5 billion in September, up $2.9 billion from $58.7 billion in August. September exports were $261.1 billion, $5.7 billion more than August exports. September imports were $322.7 billion, $8.6 billion more than August imports. The September increase in the goods and services deficit reflected an increase in the goods deficit of $1.7 billion to $86.3 billion and a decrease in the services surplus of $1.2 billion to $24.8 billion.

US Light Vehicle SalesReleased 11/3/2023 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.497 million units in October.

PMI Non-Manufacturing Index Released 11/3/2023 – Economic activity in the services sector expanded in October for the tenth consecutive month as the Services PMI® registered 51.8 percent, 1.8 percentage points lower than September’s reading of 53.6 percent.

Next week we get data on Services PMI, the U.S. Trade Balance, Consumer Credit, JOLTS, and the November Jobs Report.

Disclaimer

This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any stock, bond, currency or CFD contract.

Some information contained herein has been obtained from third party sources believed to be reliable, but has not been independently verified by us; its accuracy or completeness is not guaranteed. Our commentary is based on information considered to be reliable, but no representation is made that it is accurate or complete, and should not be relied upon as such.

The views expressed represent the opinions and beliefs at the time of this commentary and are not meant as a market forecast. These views are subject to change at any time based on market or other conditions and Good Life Advisors disclaims any responsibility to update such views. This information may not be relied on as advice or as an indication of trading intent on behalf of any portfolio. Portfolio investments may change at any time.

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While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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