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Current Market Observations

December 5, 2023 | Weekly Commentary

What a difference a month makes! Last month, we were lamenting the market’s shellacking it took from August – October 2023. Both stocks and bonds were negative for those three months. Fast forward to November 2023, and we see the best returns for stocks and bonds for November for the past 30 years! Last week, we saw the Dow Jones Industrial Average increase by +2.4%, the S&P 500 Index increase by +0.8%, and the NASDAQ increase by +0.4%. These gains moved each major index into double-digit returns year-to-date (see numbers immediately below). Further, the 10-year U.S. Treasury moved a stunning 25 basis points lower last week to end at 4.22% after reaching 4.98% just one month ago. Our takeaway from outsized returns like this for one month reminds us of the importance of staying invested, weathering the intermittent storms, and reaping the rewards.

US Economy 

As mentioned above, stocks and bond markets began reacting positively as the U.S. Inflation fell from the August 2022 rate of 9.1%. Chart 1 below from Valley National Financial Advisors and Y Charts shows the U.S. Inflation Rate, the S&P 500 Index, and the 10-year U.S. Treasury. Of course, bonds experienced some pullbacks, especially as thoughts of continued rate hikes seeped into the market. Still, the general movement has been lower rates since the Federal Reserve paused its interest rate tightening pattern at the July 2023 FOMC meeting.

November’s returns were predicted by inflation continuing to fall, as evidenced by the chart above showing the standard U.S. inflation rate. The Federal Reserve prefers the Core CPI, which excludes volatile food, shelter, used vehicles, and energy. Core CPI has also fallen drastically as the Fed embarked on its fast-paced interest rate hiking cycle. Chart 2 below from Valley National Financial Advisors and Y Charts show Core CPI and the 10-year U.S. Treasury. While inflation has not yet reached the Fed’s 2.00% target, we are far from the 9.1% rate we saw last year. Further, Fed Chairman Jay Powell has clearly stated that higher interest rates take time to work their way through the financial system, and this cycle of rate hikes has lasted 22 months.

Policy and Politics 

Washington remains quiet as the stop-gap budget was passed, and we will not discuss this again until January 2024. Next year is a presidential election cycle, and we will have a lot more to see and discuss as that cycle evolves. The FOMC meets next week, and we expect the message to be more like “wait and see” and “watch the data” than a message of rate cuts that some economists are predicting already. Chairman Powell has been noticeably clear in that message, and has avoided mentioning a time for future rate cuts. Watch the message next week in Chair Powell’s press conference rather than the action of the committee on rates. The U.S. economy remains healthy, and consumer spending looks strong thus far during this year’s retail holiday season.

What to Watch 

  • Monday, December 4th  
    • 4:30PM: U.S. Retail Gas Price (Prior: $3.363/gal.) 
  • Tuesday, December 5th  
    • 11:00AM: U.S. Recession Probability (Prior: 46.11%) 
  • Wednesday, December 6th  
    • 8:15AM: ADP Employment Change (Prior: 113,000) 
    • 8:15AM: ADP Median Pay YoY (Prior: 5.70%) 
  • Thursday, December 7th  
    • 8:30AM: Initial Claims for Unemployment Insurance (Prior: 218,000) 
    • 12:00PM: 30-Year Mortgage Rate (Prior: 7.22%) 
  • Friday, December 8th  
    • 8:30AM: U.S. Labor Force Participation Rate (Prior: 62.70%) 
    • 8:30AM: Nonfarm Payrolls MoM (Prior: 150,000) 
    • 8:30AM: Unemployment Rate (Prior: 3.90%) 
    • 10:00AM: Index of Consumer Sentiment (Prior: 61.30) 

Since joining Valley National Financial Advisors in August 2020, my message as Chief Investment Officer has been clear – watch the data, get invested, as your risk tolerance will allow you to stay invested. Yes, 2022 was painful, but in this year alone, we have seen both the stock and the bond markets regain much of the ground lost in 2022. November 2023 alone saw a +9.0% gain in U.S. equities. Think about those investors sitting out this market on the sidelines and realizing they just missed a +9.0% gain! Investing can be a painful business, but gathering generational wealth over generations is not painful; instead, it takes investors who are committed to their investment plan. Will December 2023 be a month to remember? We will watch the data.