MARKET RECAP

• US markets made it seven weeks in row, up by 2.82%, bonds were up by 2.15% as interest rates continued to fall. The yield on the 10-year dropped by 32 basis points.
• Mortgage rates fell to under 7% for the first time since August of 2022.
• The Fed kept interest rates unchanged, but to everyone’s surprise, Powell sounded dovish and said that rate cuts were under discussion, contrary to a statement just 12 days before. The markets took off in response; not sure why Powell needed to go that far; hope this won’t be a replay of the 1970s when the Fed took its foot off the gas and inflation accelerated. Or maybe he sees a steeper economic decline than investors anticipate down the road and wants to get in front of it.
• CPI was up by 3.1% year over year.  Services, excluding energy, were up by 5.1%.

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MARKET RECAP

• US stocks +0.30%, international stocks -0.62%, bonds +0.06%.
• S&P 500 has a six-week winning streak.
• Investors think there will be a soft landing, and interest rates have peaked.
• Earnings estimates for 2024 have been up in the last few weeks.

US STOCK MARKET (VTI)

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November 2023: Financial Markets Ride a Rebound Rollercoaster

November 2023 painted a rollercoaster picture for financial markets, offering a welcome glimpse of sunshine amidst lingering anxieties. Here’s a breakdown of the key themes:

Equity Market Uptick:

• Major indices soared, defying some bearish forecasts and ending the month on a high note.
• The S&P 500 jumped 9.1%, marking its best monthly return since January 2023. The Dow Jones surged 9.2%, and the Nasdaq Composite skyrocketed 10.8%.
• Small-cap and mid-cap stocks outperformed large-cap, indicating a broader market rally.

Shifting Sentiment:

• Several factors contributed to the turnaround:
  • Disinflationary trends: Lower-than-expected inflation data fueled hopes for peak inflation and a potential slowdown in Fed rate hikes.
  • Positive earnings surprises: Strong earnings reports from major companies, particularly in technology and consumer discretionary sectors, boosted investor confidence.
  • Easing Fed rhetoric: Hints at a slower pace of future rate hikes from the Federal Reserve further calmed anxieties.

Sector Rotation and Winners:

• Growth stocks, previously battered by rising rates, led the charge with impressive gains. Technology, consumer discretionary, and real estate sectors soared.
• Defensive sectors like utilities and consumer staples, which had held up during the downturn, saw modest gains or even slight declines.
• Energy was the month’s sole negative sector, impacted by concerns about slowing global demand and potential recessionary scenarios.

Global Markets Join the Party:

• International markets enjoyed a strong rebound as well.
• Developed markets like the MSCI EAFE rose 9.3%, while emerging markets posted an 8.0% gain.
• This reflected the improvement in global risk sentiment and the weakening of the US dollar.

Other Notable Events:

• The US-China relationship saw signs of potential thaw with a resumption of high-level military communication.
• The temporary ceasefire in the Middle East allowed for the exchange of hostages, offering a glimmer of hope in a volatile region.
• Concerns about a US debt default eased with the temporary suspension of the debt ceiling crisis.

Overall, November 2023 was a month of remarkable financial market resilience. The fading threat of inflation, cautious optimism regarding Fed policy, and strong corporate earnings combined to fuel a broad-based rally. However, some underlying uncertainties remain, including the trajectory of economic growth, geopolitical tensions, and the future pace of interest rate hikes.

MARKET RECAP

• S&P 500 +1%
• The VIX is at its lowest level since January 2020, 12.46, this is in the midst of a possible recession next year and a war between Israel and Hamas.
• A survey by the NY Fed showed that 66% of US households have enough reserves to cover a surprise $2,000 expense, the lowest level in a decade.
• Initial jobless claims were only 209,000 last week.

SCOREBOARD

MARKET RECAP

The S&P 500 continues to tear higher, up 10% since the October low. For the week, US stocks advanced by 2.60%, international stocks by 3.52%, and bonds by 1.37%. The yield on the 10-year treasury fell by 13 basis points to 4.44%.

Investors figure that inflation is sinking, interest rates have dropped, and Fed cuts are coming. The CME Fed-Watch site says the market is pricing in four 25-basis point cuts by the end of next year. That seems contrary to the “higher for longer” theme that Fed officials preach.

MARKET RECAP

MARKET RECAP

• US stocks up by 0.95%, international stocks fall by 0.70%, bonds down by 0.23%.
• Stocks were up every day except Thursday when they fell due to a weak bond auction.
• Earnings will be up this quarter. So far, S&P 500 earnings are up 3.7% for Q3 over the previous year. This would break a three-quarter losing streak.
• Leading Economic Indicators are negative and the odds of a recession are slowly increasing.
• Moody’s kept the US credit rating at Aaa but adjusted their outlook to negative. Rising interest rates could result in interest payments representing 26% of revenue by 2033 from 9.7% in 2022.
• Oil has been falling and is now down by 14% since October 19th.

US STOCK MARKET (VTI)

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MARKET RECAP

Equities had a monster rally worldwide; US markets jumped by 6.05% and international stocks by 5.78%. Bonds rallied by 2.02% as the 10-year yield fell by 27 basis points. Markets rallied when the Treasury announced that long-term debt auctions would be smaller than anticipated. In addition, economic data came in softer than expected. Interest rates dropped like a rock in response.

During the week, the Fed announced they would hold interest rates steady. Investors are assuming that interest rates are near their peak. Also, job growth was only +150,000 in October, half of the September gain. All of this news combined set up a “Goldilocks” scenario, at least that is the way the market reacted.

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October 2023: Financial Markets Enter Octoberfest with a Dose of Reality

October 2023 saw financial markets navigating a mixed bag of anxieties and cautious optimism, much like the weather shifting between crisp autumn mornings and warm afternoon spells. Here’s a breakdown of the key themes:

Equity Market Pullback:

• Major indices retreated further, extending the downtrend from September.
• The S&P 500 lost 2.1%, the Dow Jones dipped 1.3%, and the Nasdaq Composite shed 2.8%.
• Small-cap and mid-cap stocks suffered even more, highlighting increased risk aversion among investors.
• Only Utilities and Technology managed to eke out small gains, the latter driven by specific company earnings surprises.

Rising Yields Bite:

• The long-held hope of Fed’s “pivot” towards a dovish stance faded as inflation stayed stubbornly high.
• The 10-year Treasury yield climbed from 4.58% to 4.79%, reflecting market expectations of further rate hikes.
• This put pressure on interest-rate sensitive sectors like technology and consumer discretionary.

Economic Resilience Fails to Buoy Markets:

• The US economy displayed surprising resilience, with a strong third-quarter GDP growth of 1.2%.
• However, this positive data was overshadowed by concerns about the sustainability of growth amidst rising interest rates and slowing global demand.
• Survey data pointed towards weakening consumer and business confidence, further dampening market sentiment.

Sector Rotation and Energy’s Rise:

• Investors sought shelter in defensive sectors like Utilities and Consumer Staples.
• Energy, benefiting from tight supply and geopolitical tensions, became the biggest laggard with a 5.8% decline.
• The strong dollar weighed on international investments, with emerging markets feeling the brunt of the pressure.

Other Notable Events:

• US government funding concerns briefly spooked the market before a temporary agreement was reached.
• Corporate earnings season commenced, offering mixed results with some companies beating expectations and others falling short.
• Geopolitical tensions remained prevalent, with the war in Ukraine and rising US-China rivalry influencing investor sentiment.

Overall, October 2023 proved to be a month of cautious adjustment for financial markets. While a strong economy provided some solace, rising interest rates and persistent inflation anxieties kept the bears in control. 

MARKET RECAP

US stocks fell by 2.57% and international stocks by 1.10%. US stocks are now in correction territory, down 11.05% from their July high. Bonds managed a 0.64% rally. The US economy grew at a robust 4.9% in Q3, up from 2.1% the quarter prior. The GOP elected a speaker, Mike Johnson, after a couple of weeks of going through a series of nominees.

SCOREBOARD

MARKET RECAP

US stocks fell by 2.37% and international stocks by 2.75%. Bonds dropped by 1.75%. The yield on the treasury hit 4.98% this week, the highest level since July 2007. The yield has had a steep rise since the Fed last increased interest rates in late July (up over one percentage point). Stocks are now down by 7.5% since July 26th.

86 S&P 500 companies have reported earnings, recording a 4.9% increase over last year. Almost 3/4 have topped estimates.

The Fed seems like it will hold off on interest rate increases for the time being but is sticking with the higher for longer theme.

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