Weekly Market Update | Week 50, 2023

Market Update

Gains Were Broad Based this Week

The 4th quarter rally got an assist with two inflation reports both showing a cooling. Both the headline and core PPI came in unchanged for the month and just 2% year/y. CPI came in at the consensus up 4% year/y and 0.3% month over month.

Wednesday afternoon the Fed essentially said they were done raising, and might even lower rates three times in the coming year. That combination resulted in a big drop in short and long-term interest rates and steep rallies in bond prices and stocks. It also caused some rotation into sectors like REITs and financials which are more rate-sensitive and led the market higher. Gold also had a strong week.

Small caps had back-to-back 3% plus days Wednesday and Thursday driving this week’s return to just below 6%. The Dow, S&P, and Nasdaq cracked 7 weekly gains in a row, making the Dow the first of the major indexes to hit a record high. The S&P is just 2% away from a new high. Since the October 27th low, it’s been a risk-on attitude that’s driven stocks higher. The yield on the 10-year treasury topped out at 5% a week earlier on Oct 19th and has been coming in ever since. 

The Magnificent Seven names were mostly higher, but as noted gains were broad-based and the equal-weight S&P outperformed the official index. Treasuries were firmer, with yields dropping sharply on Wednesday and Thursday amid increased market confidence rate cuts could materialize as soon as March. The 10Y yield, which had flirted with 5% as recently as 19-Oct, ended the week below 4%. The dollar was weaker on the major crosses, particularly vs the yen; DXY (1.4%). Gold finished up 1.0% after the prior week’s pullback. Oil was fractionally higher, with WTI settling up 0.3% and breaking a streak of seven straight weekly declines.

The December FOMC meeting was the focal point of the week. The market had been looking for some sort of signal that the Fed was at least pivoting from its hiking bias, and some tweaks to the meeting statement, a seeming shift away from the “higher for longer” mantra by Powell, and a new SEP showing median forecasts for 75bp in easing next year fit that bill.

The follow-on reaction to these developments was a Wednesday afternoon equity rally that pushed the Dow to a new record high and a dive in Treasury yields that saw the 10Y yield drop as low as 3.88% on Thursday. Fedwatch odds now reflect market expectations for a first cut possibly as early as March. Some Friday comments from NY Fed President Williams (voter) pushing back a bit on the notion of an abrupt pivot did not have much impact on this calculus.

The Fed’s move came as economic data continued to cooperate with soft-/no-landing hopes. November CPI release was judged to be largely in line with expectations. November headline PPI was flat m/m, as expected, with the 0.9% y/y increase the lowest annual figure in three years. Data from the NY Fed’s Empire survey, November industrial production, and flash December PMIs pointed to a continued slowdown in manufacturing. At the same time, November retail sales were stronger than expected and initial jobless claims came in lower.

With the last of 2023’s major catalysts now in the rearview, the market is very likely to be extremely quiet into year-end. There are no notable appearances by Fed speakers on the schedule, On the economic front, next week brings a burst of November housing data as well as December consumer confidence (Wednesday), the December Philadelphia Fed manufacturing index (Thursday), and November’s PCE report (Friday). 

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 down 3 this week. There are 623 oil and gas rigs operating in the US – Down 153 from last year.

Metals Complex 

Employment Picture 

Weekly Unemployment Claims – Released Thursday 12/14/2023 – In the week ending December 9, the advance figure for seasonally adjusted initial claims was 202,000 a decrease of 19,000 from the previous week’s revised level. The 4-week moving average was 213,250, a decrease of 7,750 from the previous week’s revised average.

November Jobs Report –  BLS Summary – Released 12/8/2023 – The US economy added 199k nonfarm jobs in November and the Unemployment rate edged down to 3.7%. Average hourly earnings increased 12 cents to $34.10.  Hiring highlights include +77k Healthcare, +49k Government, and +28k Manufacturing.

  • Average hourly earnings increased 12 cents/0.4% to $34.10.
  • U3 unemployment rate edged down 0.2% to 3.7%. U6 unemployment rate decreased 0.2% to 7.0%.
  • The labor force participation rate was little changed at 62.8%.
  • Average work week increased 0.1 to 34.4 hours.

Job Openings & Labor Turnover Survey JOLTS – Released 12/5/2023 – The number of job openings decreased to 8.7 million on the last business day of October, 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 5.6 million, respectively. Within separations, quits (3.6 million) and discharges (1.6 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

Industrial Production and Capacity Utilization – Released 12/15/2023 – Industrial production increased 0.2% in November. Manufacturing increased 0.3%. The increase in manufacturing output was more than accounted for by a 7.1% rebound in motor vehicles and parts production following the resolution of strikes at several major automakers. Utilities output decreased 0.4%. Mining increased 0.3%. Capacity utilization increased to 78.8% in November, 0.9 percent below its long-run average.

Retail Sales – Released 12/14/2023 –Headline retail sales increased 0.3% in November and are up 4.1% above November 2022.

Producer Price Index – Released 12/13/2023 – The Producer Price Index for final demand was unchanged in November, seasonally adjusted. Final demand decreased 0.4 percent in October. On an unadjusted basis, the index for final demand moved up 0.9 percent for the 12 months ended in November.

Consumer Price Index – Released 12/12/2023 – The Consumer Price Index for All Urban Consumers increased 0.1 percent in November on a seasonally adjusted basis, after being unchanged in October. Over the last 12 months, the all items index increased 3.1 percent before seasonal adjustment.

Recent Economic Data

US Light Vehicle SalesReleased 12/8/2023 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.323 million units in November.

Consumer Credit – Released 12/7/2023 – Consumer credit increased at a seasonally adjusted annual rate of 1.2 percent in October. Revolving credit increased at an annual rate of 2.7 percent, while nonrevolving credit increased at an annual rate of 0.7 percent.

U.S. Trade Balance  Released 12/6/2023 – The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $64.3 billion in October, up $3.1 billion from $61.2 billion in September. October exports were $258.8 billion, $2.6 billion less than September exports. October imports were $323.0 billion, $0.5 billion more than September imports. The October increase in the goods and services deficit reflected an increase in the goods deficit of $3.5 billion to $89.8 billion and an increase in the services surplus of $0.4 billion to $25.5 billion.

PMI Non-Manufacturing Index – Released 12/5/2023 – Economic activity in the services sector expanded in November for the eleventh consecutive month as the Services PMI® registered 52.7 percent, 0.9 percentage points higher than October’s reading of 51.8 percent.

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.

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.

Next week we get data on Housing Starts, Existing Home Sales, Durable Goods, New Residential Sales, the 3rd Estimate of 3rd Quarter GDP, and Personal Income.


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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