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Market Brief: November 2023

November 1, 2023

The Markets (as of market close October 31, 2023)

Stocks declined for the third straight month in October, with each of the benchmark indexes listed here ending the month notably lower. The Nasdaq and the S&P 500 endured their worst October since 2018. The S&P 500, down for three straight months, had its worst three-month performance since the period ended June 2022. The Nasdaq also had its worst October since 2018, down about 11.0% over the past three months, marking its poorest three-month performance since the August-October period in 2022. This was not a good month for the Dow, which suffered its worst October since 2020.

The most recent inflation data demonstrated the challenges the Federal Reserve faces in trying to bring down rising prices, with annual core prices for the Consumer Price Index (CPI) and the personal consumption expenditures price index remaining well above the 2.0% target set by the Fed. Prices for shelter and food climbed higher, while energy prices dipped lower.
Speaking of the Federal Reserve, it did not meet in September: its next meeting concludes on November 1. However, Fed Chair Jerome Powell has indicated on several occasions that inflation has remained elevated, while the economy has shown overall strength and is likely able to withstand higher interest rates for a longer period of time.

The economy has proven resilient despite the threat of a government shutdown, an autoworkers strike, the ongoing war in Ukraine, and the Israel-Hamas conflict. Third-quarter gross domestic product expanded at an annualized rate of 4.9%, according to the advance estimate. While subsequent iterations for the third quarter could see a reduction in growth as more complete data is made available, the economy clearly expanded above expectations in the third quarter. Consumer spending, which makes up about 70.0% of the economy, rose, with increased spending in durable goods, nondurable goods, and services. However, that trend may not last, as consumers may have to tighten their purse strings in light of high interest rates, while the resumption of student loan payments and dwindling pandemic-era savings might eat into their budgets.
Job growth was robust in September, with the addition of nearly 340,000 new jobs. Wages continued to rise, increasing 4.2% over the last 12 months. Despite job growth, unemployment claims increased from a year ago (see below).
Third-quarter corporate earnings have been mixed thus far. Roughly 25.0% of companies in the S&P 500 have reported third-quarter results. While nearly 77.0% of those companies have reported earnings better than expected, S&P companies are on target to see profits decline by 0.2% compared to last year's third-quarter earnings.
The secondary housing market retreated for the fourth straight month in September, primarily due to lack of inventory, high prices, and advancing mortgage rates. However, while existing home sales declined, sales of new single-family homes advanced (see below).
Industrial production expanded for the second month in a row in September (see below). According to the latest survey from the S&P Global US Manufacturing Purchasing Managers' Index™, purchasing managers reported that manufacturing contracted in September. However, the services sector expanded, but at a slower pace than in August.
Each of the market sectors ended September lower, with the exception of utilities, which eked out a 0.4% gain. Energy fell 6.3%, while consumer discretionary dropped over 5.0%. Information technology recouped losses from early in the month, but not enough to avoid slipping 0.6% by the end of October.
Bond prices fell in October, with yields increasing over the previous month. Ten-year Treasury yields rose, while the 2-year Treasury yield fell nearly 10.0 basis points in October. The dollar inched higher against a basket of world currencies. Gold prices ended October on an upswing. Crude oil prices declined in October despite the turmoil in the Middle East. The retail price of regular gasoline was $3.533 per gallon on October 23, $0.345 lower than the price a month earlier and $0.236 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.

Looking Ahead

The Federal Open Market Committee concludes its two-day meeting on November 1. Another interest rate increase will likely come out of that meeting or when they next meet in December. The markets will look to rebound from three consecutive monthly downturns.

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/ Market Data (oil spot price, WTI, Cushing, OK); (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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