December 1, 2023
The Markets (as of market close November 30, 2023)
The most recent inflation data showed price growth slowed in October. Both the Consumer Price Index and the personal consumption expenditures price index showed annual rates of inflation receded (see below).
The Federal Reserve met in November and maintained the federal funds target rate range at its current 5.25%-5.50%. While noting that inflation appears to be slowing, the Fed left future interest rate hikes on the table should inflation turn less favorable. The Fed next meets in mid-December. It will be interesting to see whether some of the members hint at a possible interest rate reduction heading into 2024. However, while inflation has begun to trend lower, it remains above the Fed's target of 2.0% and the economy has shown resiliency, all of which supports the Fed's apparent cautious approach.
The economy has proven resilient despite an autoworkers strike, the ongoing war in Ukraine, and the Israel-Hamas conflict. Third-quarter gross domestic product expanded at an annualized rate of 5.2%, according to the second estimate. Consumer spending, which makes up about 70.0% of the economy, rose, with increased spending in durable goods, nondurable goods, and services. Gross domestic income rose 1.5% in the third quarter. Rising income should help expand the economy moving into the fourth quarter.
Job growth slowed in October, with only 150,000 new jobs added. Wages continued to rise, increasing 4.1% over the last 12 months. Along with declining job growth, unemployment claims increased from a year ago (see below), reaching their highest level since late 2021.
The third quarter saw U.S. companies enjoy their biggest year-over-year gain in earnings since the second quarter of 2022. With almost all of the S&P 500 companies reporting, overall earnings are estimated to be more than 6.0% above earnings totals from a year ago. More than 80.0% of quarterly reports exceeded analysts' earnings expectations. In addition, third-quarter corporate profits in the U.S. surpassed the previous quarter by 4.1%, according to Trading Economics.
Sales of both new and existing homes retreated in October, primarily due to lack of inventory, high prices, and advancing mortgage rates. Sales of existing homes are down nearly 14.5% over the past 12 months, although sales of new single-family homes have increased nearly 18.0%.
Industrial production contracted in October following two months of gains (see below). Conversely, manufacturing expanded in October, according to the latest survey from the S&P Global US Manufacturing Purchasing Managers' Index™, driven by an increase in new orders. The services sector also saw business accelerate in October.
Ten of the 11 market sectors ended November higher, with the exception of energy, which fell about 1.7%. Last month saw real estate, information technology, financials, communication services, and consumer discretionary climb by more than 11.0%.
Bond prices advanced in November, with the 10-year Treasury bond enjoying its best month since 2011. Investors are hedging their bets that the Federal Reserve is through hiking interest rates. Ten-year Treasury yields dropped notably, while the 2-year Treasury yield fell nearly 27 basis points to about 4.70% in November. The dollar inched higher against a basket of world currencies. Gold prices hit record highs following a slip in bond yields and a weakening of the U.S. dollar. Crude oil prices declined in November despite the turmoil in the Middle East and additional output cuts collectively agreed to by OPEC+. The retail price of regular gasoline was $3.238 per gallon on November 27, $0.295 under the price a month earlier and $0.296 lower than a year ago.
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.
Entering the last month of the year, much of the focus will be on the economy and inflation. Recent data has shown that the economy has weathered the aggressive interest-rate policy adopted by the Federal Reserve. However, inflation has shown definite signs of slowing, enough to further hopes that the Fed will begin lowering interest rates in 2024.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI, Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 largest, publicly traded companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indexes listed are unmanaged and are not available for direct investment.
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