Weekly Market Update | Week 52, 2023

We Made It Everyone, Good Job!

Another year in the books. While 2022 was tough across all asset classes, 2023 was the exact opposite:

  • The S&P 500 ended less than one percent off its 2022 highs
  • Small and mids had a monster 4th quarter bringing their returns to up mid-teens for the year. 
  • Energy, staples and utilities were the only negative sectors in 2023.
  • Bonds rebounded substantially but investors are still in the red for the two years.

2023 Market Analysis

The market entered 2023 under something of a cloud, with many analysts baking a recession into their forecasts. Some of the more bearish outlooks discussed the high-rate backdrop, fears of a consumer pullback, risks to corporate earnings, and geopolitical uncertainties.

But in this past year, the real story was about mounting expectations for a dovish Fed pivot, continued spending by the US consumer, and resilient corporate earnings that are expected to post double-digit growth in 2024. In short, hard-landing fears gave way to a broader soft- or no-landing economic consensus.

Fed Update

Fed rate policy was at the heart of the 2023 narrative. December 2022 had seen a 50bp FOMC hike after four straight 75bp moves higher, with Chair Powell maintaining the hawkish tone that the Fed had more work to do in taming inflation. Through this July, the FOMC voted for four additional 25bp hikes (up to a 5.25-5.50% Fed funds target rate), with the Fed continuing to largely voice its “higher for longer” mantra and the market debating where the ceiling would be.

But all the while Powell continued airing his hopes for an economic slowdown without a hard landing, and by October Chicago Fed President Goolsbee said the economy might still be on a “golden path.” When dovish elements appeared out of the December 2023 Fed meeting (including dot-plot forecasts for 75bp in rate cuts in 2024), it sparked an equity rally and Treasury yield slide that carried into year-end.

A key element in the Fed’s decision-making was continued progress on moving inflation back toward the 2% target. While y/y headline CPI peaked in June 2022 at 8.9%, that figure had dropped to 6.4% by December 2022 and to 3.1% by November 2023 (with some higher numbers in August and September amid a runup in energy prices). Core prices dropped to a 4.0% y/y increase by November’s report, in contrast to last December’s 5.7%, with services prices (particularly sticky shelter prices) remaining firmer.

November 2023’s core PCE, the Fed’s preferred inflation measure, was up only 3.2%, the lowest reading since April 2021. At the same time, there seemed to be increasing confidence that the Fed has inflation on the run; the December UMich consumer sentiment report noted that respondents’ year-ahead inflation expectations had dropped to their lowest level (3.1%) since March 2021.

Labor Market

The labor market also continued to loosen, easing an avenue of potential inflationary pressure. Job openings eased but remained well above pre-pandemic averages; growth in nonfarm payrolls remained positive but pulled back from 2022 levels (and more recent months saw downward revisions).

Average hourly earnings, which rose more than 5% in 2022, were only up 3.6% for the year through November. And this downshift did not see any kind of spike in unemployment claims, though the ticking-up in continuing claims has received some attention in recent weeks.

On-the-ground reports from the Fed’s Beige Book noted employers were still seeing some difficulty hiring, especially for higher-skilled positions, but at the same time felt more comfortable letting go of weaker performers in contrast to the “labor hoarding” reflected in other reports.

And all the while, consumer spending remained resilient, with November retail sales up more than 4% y/y amid what was considered to be a healthy holiday shopping season.


AI-related stocks had a big year, there was broad enthusiasm for the potential of ChatGPT and other Large Language Models (LLMs), and many large tech names entered the arena. But the meteoric rise of the technology also sparked calls for increased regulation and oversight, while widespread adoption also served to highlight its current limitations (with AI’s tendency to “hallucinate” generating a lot of headlines).

Promising new GLP-1 obesity drugs shifted thinking around multiple market sectors. Eli Lilly introduced tirzepatide (Zepbound/Mounjaro) and Novo Nordisk’s semaglutide (Wegovy/Ozempic) both showed the ability to assist in weight loss for some patients, raising the prospect of lower overall incidence of Type 2 diabetes, which was a headwind for some medical device manufacturers; snack-food manufacturers and retailers also had to confront the possibility of weaker consumption trends.

March saw the market confront a banking crisis that saw Silicon Valley Bank, Signature Bank, and First Republic Bank ultimately collapse amid the impact of the Fed’s aggressive tightening campaign on investment portfolios and accelerating deposit flight. However, the Fed quickly announced it would protect uninsured deposits at the institutions, and contemporary fears about a broader contagion effect ultimately proved unfounded.

Political Atmosphere

Washington dysfunction was on full display this year, particularly with the months-long, winding road that led to a bipartisan deal to raise the US debt ceiling just a few days before a possible default. Government-funding talks also kept prospects of a government shutdown alive during the back half of the year.

A deal on a continuing resolution at the end of September punted the crisis point to November, though it also sparked a defenestration of House Speaker McCarthy and a chaotic race within the GOP to replace him. Another continuing resolution in November means the issue will return to prominence in mid-January.

Geopolitics continued to fill the front pages, though the market characteristically took little lasting notice. The war in Ukraine continued to grind on without much sign of a diplomatic off-ramp; US-China tensions remained elevated and sparked more import/export restrictions.

There were broad concerns that the 7-Oct attack on Israel by Hamas could devolve into a wider, regional Mideast conflict; but despite an Israeli ground invasion of the Gaza strip and international calls for a ceasefire, the struggle has remained largely contained. At year’s end, the focus is on Houthi attacks on Red Sea shipping, though this may be returning thanks to an international protection initiative.

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 gained 2 this week. There are 622 oil and gas rigs operating in the US – Down 157 from last year.

Metals Complex 

Employment Picture 

Weekly Unemployment Claims – Released Thursday 12/28/2023 – In the week ending December 23, the advance figure for seasonally adjusted initial claims was 218,000 an increase of 12,000 from the previous week’s revised level. The 4-week moving average was 212,000, a decrease of 250 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

Chicago PMI – Released 12/29/2023 – Chicago PMI moved back into contraction territory in December after expanding in November decreasing to 46.9 points down from 55.8 points in November. The contraction follows one month of expansion and follows 14 consecutive months of contraction in business activity in the Chicago region.

US Light Vehicle SalesReleased 12/29/2023 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.319 million units in November.

Recent Economic Data

Personal Income – Released 12/22/2023 – Personal income increased $81.6 billion (0.4 percent at a monthly rate) in November. Disposable personal income (DPI) increased $71.9 billion (0.4 percent). Personal consumption expenditures (PCE) increased $46.7 billion (0.2 percent).

New Residential Sales – Released 12/22/2023 – Sales of new single‐family houses in November 2023 were at a seasonally adjusted annual rate of 590,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 12.2 percent below the revised October rate of 672,000 but is 1.4 percent above the November 2022 estimate of 582,000. The median sales price of new houses sold in November 2023 was $434,700.  The average sales price was $488,900.  At the end of November, the seasonally adjusted estimate of new homes for sale was 451,000, a supply of 9.2 months at the current sales rate.

Durable Goods – Released 12/22/2023 – New orders for manufactured durable goods in November, up two of the last three months, increased $15.1 billion or 5.4 percent to $295.4 billion, the U.S. Census Bureau announced today. This followed a 5.1 percent October decrease. Excluding transportation, new orders increased 0.5 percent. Excluding defense, new orders increased 6.5 percent. Transportation equipment, also up two of the last three months, drove the increase, $14.3 billion or 15.3 percent to $107.8 billion.

Third Estimate of 3rd Quarter 2023 GDP – Released 12/21/2023 – Real gross domestic product (GDP) increased at an annual rate of 4.9 percent in the third quarter of 2023, according to the “third” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.1 percent. The GDP in the “third” estimate is based on more complete source data than were available for the “second” and “advance” estimates. In the second estimate, the increase in real GDP was 5.2 percent. The update primarily reflected 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, residential fixed investment, and nonresidential fixed investment. Imports increased.

Consumer Confidence– Released 12/20/2023 – Consumer Confidence increased in December, up to 110.7 from 101.0 in November. Expectations increased from 77.4 to 85.6. The Expectations index increase reflects optimism in line with levels last seen in July.

Existing Home Sales – Released 12/20/2023 – The Existing home sales increased in November ending five consecutive months of declines. Existing home sales in November increased 0.8% from October but fell 7.3% year over year. Existing home sales increased to 3.82 million in November seasonally adjusted.

Housing Starts – Released 12/19/2023 – November housing starts came in at 1,560,000, 14.8% above the October estimate and is 9.3% above the November 2022 rate. Building permits were 2.5% below the October rate at $1,460,000 but 4.1% above the November 2022 rate.

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.

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.

Next week we get data on Manufacturing PMI, U.S. Construction Spending, Services PMI, JOLTS, and the December Jobs Report.


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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