Category Archives: stock market

Current Market Observations

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Markets were mixed on a holiday-shortened trading week, with the Dow Jones Industrial Average rising 0.8%, the S&P 500 Index increasing by 0.4%, and the NASDAQ falling -0.3%. Utilities were the best-performing sector for the week (+2.9%), while information technology was the worst-performing sector (-1.3%). Oil prices continued to move higher, finishing the week with a 3.2% gain. Friday saw the Fed’s preferred gauge for inflation, the Personal Consumption Expenditure Index, rise 0.3% (excluding food & energy), matching economists’ expectations. The 10-year Treasury saw continued buying last week, pushing yields down four bps for the week, finishing at 4.21%.

U.S. Economy 

Although last week was a quiet week for economic releases, on Friday, we saw the Federal Reserve’s preferred gauge of inflation, U.S. Core Monthly and Yearly PCE (Personal Consumption Expenditures) for February, and both measures were lower, signaling that inflation continues to fall, see Chart 1 below from Valley National Financial Advisors and Y Charts shows U.S. Core Monthly and Yearly PCE for five years. Federal Reserve Bank Chairman Jerome Powell has stated very clearly that they are watching the inflation data and will be data-dependent in terms of rate movements. The current Fed has been the most transparent we can remember regarding interest rate movements, which is why we do not expect any rate cuts until well into the second half of 2024, and even then, those movements in rates, if any, will be mild and data dependent.

This week, we will see numbers for new payrolls and unemployment insurance for March 2024, and companies will start to prepare for 1st Q EPS reports. Otherwise, we will have a quiet week regarding economic releases.  

Policy and Politics 

Last week saw a holiday-shortened week for Washington, with Good Friday on March 29th. Elevated geopolitical tensions persist amid the ongoing conflicts in the Middle East and the Russia-Ukraine war. U.S.-China trade tensions continue to be elevated with recent news of China’s oversupply of solar energy, electric vehicles, and lithium-ion batteries impacting U.S. producers. President Biden trails former President Trump by around two points in national polling and around three points in swing states. Prediction markets show roughly even odds of a Democratic or Republican win.

Economic Numbers to Watch This Week 

  • U.S. ISM manufacturing for March 2024, prior to 47.8 
  • U.S. Factory Orders for February 2024, prior –3.6% 
  • U.S. Job Openings for February 2024, prior to 8.9 million 
  • U.S. ADP Employment for March 2024, prior 140,000 
  • U.S. ISM Services for March 2024, prior 52.6 
  • U.S. Employment Report for March 2024 
    • Nonfarm payrolls, prior 275,000 
    • Unemployment rate prior 3.9% 

Updates from Federal Reserve Board Members continue highlighting lower inflation readings, improved outlook for GDP growth in coming quarters, and healthy job growth. Markets appear to be warming to the idea that stronger growth for longer is preferred over lower rates. We are encouraged by signs of housing supply improvement, which should help this year’s spring selling season. As earnings season kicks off in the coming weeks, we will be listening to any signs of economic softness communicated by corporate management teams. We continue to monitor geopolitical risks for signs of increased tension and spillover into new areas. Please reach out to your advisor at Valley National Financial Advisors with any questions. 

Current Market Observations

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Last week marked the second week of negative returns in the equity markets, albeit modestly negative, especially given the strong price rally we have seen thus far in 2024. Dow Jones Industrial Average fell –0.02%, The S&P 500 Index fell –0.13%, and the NASDAQ fell –0.70%. Equity markets sold off as two inflation reports (CPI (Consumer Price Index) and PPI (Producer Price Index)) showed numbers slightly higher than economists had predicted, leading investors to speculate that interest rates would remain higher for longer and that rate cuts were farther off than predicted as well. We at Valley National Financial Advisors have pointed to June 2024 as the earlier point at which the Fed would start to cut interest rates, and we are sticking with that projection. The 10-year U.S. Treasury bond yield rose 22 basis points last week to close at 4.31%.

U.S. Economy 

As mentioned above, two inflation reports showed that inflationary pressures are sticking around longer than economists thought. The U.S. CPI and U.S. PPI showed modest moves higher on a year-over-year basis, but the U.S. Core CPI continues to fall slowly but steadily. See Chart 1 below from Valley National Financial Advisors and Y Charts showing the inflationary trend in the above reports. While sticky inflation may seem like a problem, the path to the Fed’s 2% inflation target was never going to be linear; rather, it would be gradual and lumpy, and that is what we are seeing as higher interest rates continue to combat pandemic-related inflationary pressures. Fed Chairman Jay Powell and the FOMC will meet this week to determine interest rate policy for the next several months. We expect rates to remain unchanged, with the Fed Funds Rate at 5.50%. After the meeting, Chairman Powell’s press conference will give us some needed direction and timing on the future path of rates and potential cuts.

Policy and Politics 

Shockingly, Vladimir Putin was re-elected to a third term as President of Russia. In a media-staged election, Mr. Putin secured 78% of the vote and will be Russia’s leader until at least 2030. Sadly, we do not expect an end to the Ukraine/Russia War as Putin will regard this “victory” as proof that his war efforts are the correct path for Russia to be taking. Global turmoil and conflict continue in Israel and Haiti, with neither region showing a cessation in troubles. Lastly, the U.S. Senate will take up a bill that the U.S. House passed last week where the massively popular app TikTok must be sold off by Chinese company Byte Dance or risk being banned in the U.S. Lobbyists for TikTok and competitor Meta are pouring money into Washington as each tries to pressure Congress for action in either direction. 

What to Watch This Week 

  • Target Fed Funds (Upper Limit) released 3/20 current 5.50% 
  • U.S. Initial Claims for Unemployment Insurance week of March 16, released 3/21, prior 209,000. 
  • U.S. Existing Home Sales Monthly for Feb ’24, released 3/21, prior 4.00M 
  • 30-year Mortgage Rate for the week of March 21, released 3/21, prior 6.74% 

Our weekly objective in writing The Weekly Commentary is to inform and educate our readers about the markets, economy, and risks. Of the three, risk is most important to us as it is the hardest to quantify and use when adjusting investment portfolios. Lately, we have struggled to find serious market risks or continued economic growth. Important sectors of the economy are running nicely: consumer, banks, corporate EPS, and housing; all the while, labor remains healthy, with a national employment rate of 3.9%. We expect the Fed to remain on hold as inflation remains stubbornly sticky and is not yet at 2.00%. Watch the Fed and listen to Chair Powell’s message. Please contact your advisor at Valley National Financial Advisors with any questions. 

Current Market Observations

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By: Chief Investment Officer, William Henderson

Equity markets were mixed last week, with two of the three major indexes reporting positive results and only the Dow Jones Industrial Average falling for the week. The S&P 500 Index rose +0.95%, the NASDAQ rose +1.74%, while the Dow Jones Industrial Average fell –0.11%. Critically important to a needed broadening in equity returns, the Russell 2000 Index of Small Capitalization stocks rose +3.00%. We do not typically report on the Russell 2000, but this week’s move higher has put some breadth into the market rather than keeping returns concentrated in the “Magnificent 7.” Concentrated markets tend to rise and fall quickly and are usually based on a small piece of information rather than sound fundamentals. Fixed-income markets were quiet last week as traders and markets have accepted that interest rate cuts by the Federal Reserve are further off than previously thought. The 10-year U.S. Treasury bond yield fell seven basis points to close the week at 4.19%.

U.S. Economy 

Last week’s inflation data showed that prices on consumer goods continue to fall. See Chart 1 from Valley National Financial Advisors and Y Charts showing U.S. Core PCE (Personal Consumption Expenditures) and US PCE YoY. The recent U.S. Core reading is at 2.85%, compared with 2.94% last month and 4.90% last year. This recent reading is lower than the long-term average of 3.24%. While the U.S. Inflation Rate is currently at 3.09%, below the Fed’s target of 2.00%, Fed Chairman Jay Powell has stated that interest rates could move before the inflation rate reaches their target. A Fed pivot (moving from raising rates to cutting rates) will help broaden out equity returns beyond the “Magnificent 7” because small-cap and mid-cap U.S. companies tend to be more interest rate sensitive than large-cap companies.

Corporate profits continue to be strong, and forward-looking estimates suggest we will see profit growth over the next year. Thus far, 90% of S&P 500 Index companies have reported 4th quarter earnings, and according to Bloomberg, revenue growth was +3.8%, while earnings growth was a healthy +7.5%. While much of the growth was attributable to the “Magnificent 7,” if the Fed does eventually pivot on interest rates (we expect not until the second half of 2024), cyclical sectors of the economy will benefit. Thus, economic growth will continue at a robust pace.

Policy and Politics 

March 5th is Super Tuesday, with 15 U.S. states holding primaries on the same day. We expect that the 2024 U.S. presidential primary race will be determined after this date, and whether we have Trump v Biden or Haley v Biden, the next 8+ months will be chock full of the nonsense that sadly surrounds major U.S. elections these days. In the meantime, lawmakers have reached a tentative agreement (to be voted on this week) to fund the government, thereby avoiding another embarrassing shutdown.

We continue to watch the saga playing out with New York Community Bank, where last week they restated their previous earnings results and disclosed potential “weaknesses in internal accounting practices” (emphasis ours!). Banks can be fragile places because confidence in management means confidence in where one places their money for safekeeping. We are confident that the Federal Reserve Bank, the FDIC, and the Treasury know NYCB’s problems and will provide needed guidance and assistance.   

What to Watch This Week 

  • U.S. Job Openings: Total Nonfarm, released 3/6/24, prior 9.026M 
  • U.S. Initial Claims for Unemployment Ins. for the week of 3/2/24, released 3/7/24, prior 215.000. 
  • U.S. Labor Force Participation Rate for Feb 2024, released 3/8/24, prior 62.5% 
  • U.S. Unemployment Rate for Feb 2024, released 3/8/24, prior 3.7%  

Market volatility remains sanguine, and other than the potential for a government shutdown, news from Washington DC has been muted. Global turmoil exists with Israel/Hamas and Ukraine/Russia, but true market volatility is muted. See Chart 2 below from Valley National Financial Advisors and Y Charts showing the VIX or Volatility Index. The VIX is at 13.40, well below the long-term average of 19.11. Our view on this data point is that true risks to the market, like higher interest rates and a major U.S. economic slowdown or disruption, remain on the sidelines, allowing markets to trade on their own merits. 

Among the noise and news, markets continue to set new all-time highs as they efficiently filter out the noise. Low volatility, remaining fiscal stimulus from previous years’ bills (CHIPs Act or Inflation Reduction Act), and growing corporate earnings create real tailwinds for equities. If we get a Fed pivot on interest rates in the second half of 2024, further tailwinds will emerge. It is hard to find unwelcome news these days, but we will keep looking! Reach out to your advisor at Valley National Financial Advisors for help or questions.

Current Market Observations

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By: Chief Investment Officer, William Henderson

The shortened President’s Day Holiday week, with few economic news releases, allowed for one story to dominate the news and, therefore, market returns for the week. That story was AI (Artificial Intelligence) chip maker Nvidia’s (NVDA) 4th quarter EPS release, which showed the “Magnificent 7” member besting Wall Street analysts’ expectations for revenues and earnings. NVDA stock increased by +8.5%, adding $277 billion in market cap and notching a one-day Wall Street record. All major market indexes followed suit and ended the week higher: Dow Jones Industrial Average +0.9%, the S&P 500 Index +1.2%, and the NASDAQ +0.6%. An area of weakness in the stock market continues to be small capitalization stocks, which continue to lag the overall market. Fixed-income markets continue to push off any thoughts of rate cuts by the Federal Reserve before the second half of 2024. The 10-year U.S. Treasury bond yield fell four basis points to close the week at 4.26%.

U.S. Economy 

It was a quiet week for economic releases. This week, we get the revised 4th quarter US GDP (Gross Domestic Product), which will be closely watched for upward revisions from the current +3.3%. Further, the February 2024 Index for Consumer Sentiment will be released, and the question will be whether consumer confidence moves higher yet again. Minutes from the January 2024 FOMC (Federal Open Market Committee) meeting confirmed what we have been saying for quite some time, that interest rate policy will remain data-dependent. Policymakers further stated that they continue to see risks of continued price stability.

Policy and Politics 

Of course, 2024 is a US presidential election year, and Saturday showed former President Trump beating former South Carolina Governor Nikki Haley in the South Carolina GOP primary. While the race for the GOP candidate is not over, it is getting narrowed down, but we will know who the GOP candidate is on Super Tuesday (March 5). 

Globally, politics and policy remain troubled as there is no end in sight for either Ukraine/Russia or Israel/Hamas.

What to Watch This Week 

  • U.S. Real GDP (Quarter over Quarter) for Q4 2023, released 2/28/24, prior 3.30% 
  • U.S. Core PCE (Personal Consumption Expenditures) Price Index for January ‘24, released 2/29/24, prior 2.93% 
  • U.S. Initial Claims for Unemployment Insurance for week of Feb 24, 2024, released 2/29/24, prior 201,000. 
  • U.S. Index of Consumer Sentiment for Feb 2024, released 3/1/24, prior 79.60. 

Anytime a single stock’s action moves the markets, such as Nvidia did last week, we realize how thin the markets are and how starved for news and events Wall Street traders are. Certainly, the NVDA news was big, and adding a $277 billion market cap was a new record, but shouldn’t the real story be the economy? The U.S. economy continues to confound all the experts as it grows and adds employees each week. After 90% of S&P 500 companies have reported 4th quarter earnings, we see a healthy 7.5% earnings growth. We will be intrigued this week as new 4th Q GDP data and the important measure of consumer confidence will be released. Market focus will soon move to the March FOMC meeting and whether there will be any change in monetary policy. Reach out to your advisor at Valley National Financial Advisors for help or questions.

Current Market Observations

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By: Chief Investment Officer, William Henderson

Equity markets sold off, with all three major indexes posting negative returns for the week. (Dow Jones Industrial Average –0.11%, S&P 500 Index –0.42%, NASDAQ –1.34%). Meanwhile, the Russell 2000 Index of small-capitalization stocks rallied +1.17% for the week, breaking from the herd to produce a positive return. Equity markets were pushed into negative territory after releasing January’s CPI (Consumer Price Index) data, which moved higher. The modest move higher in monthly CPI data (+0.31%) reinforces our notion here on The Weekly Commentary that the Fed is data dependent and rate cuts are further off in the future because inflation is not yet tamed in Fed Chairman Jay Powell’s mind. Following the same path, fixed-income markets performed poorly last week, with the 10-year U.S. Treasury bond yield increasing by 13 basis points to 4.30%.

U.S. Economy 

As mentioned above, the CPI report for the month of January showed a move higher, but the long-term story remains the same: inflation is coming down. Chart 1 below from Valley National Financial Advisors and Y Charts shows monthly and annual CPI over the past four years. The annual rate of CPI is down from the 9% level we saw in 2022, and the current rate (3.09%) is below the recent average of 4.00%. Monthly figures are more volatile than annual figures, and it is not unusual to see a move higher in monthly CPI in January as that is the month many companies push through higher prices on goods and services. We believe the Fed will not cut interest rates until the second half of 2024, and any moves in interest rates will be predicated by precise data indicating inflation is at or near the Fed’s 2.00% target rate. Equity and fixed-income markets were too quick to price in earlier rate cuts, and markets are simply repricing to reflect that rates are not coming down anytime soon.

Last week, the University of Michigan released January’s U.S. Index of Consumer Sentiment. Chart 2 below from Valley National Financial Advisors and Y Charts shows the index over the past three years. Since bottoming in July of 2022, the index has moved higher, and more specifically, the last three readings showed improvements in Consumer Sentiment. The index historically indicates increased consumer confidence in economic expansionary periods. Markets understand this, and while we saw a pullback in stocks last week, the trend remains in place – the economy is growing, consumers are spending, and companies are making money.

Policy and Politics 

We are in a holiday-shortened week for Washington, with President’s Day on February 19. There are a few important economic reports this week for the same reason. Washington is content on arguing about a funding bill for Ukraine and Israel with or without money for U.S. border controls. It is certainly redundant but necessary to mention that we are in a presidential election year for the U.S. Eventually, that will take center stage in all that happens in Washington, DC.

What to Watch This Week 

  • U.S. Initial Claims for Unemployment Insurance for the week of Feb 17, released 2/22, prior 218,500.  
  • U.S. Existing Home Sales for Jan 2024, released 2/17, prior 3.78M. 
  • U.S. 30-year Fixed Mortgage Rate for the week of Feb 22, released 2/17, prior 6.77% 

Summary 

Equity markets were early to price in March ‘24 rate cuts, and as the data has unfolded, it is evident that the Fed is not inclined to lower interest rates until the 2.00% inflation target is hit. We are now seeing a repricing in markets to accurately reflect rates cuts much later in 2024 than March. We have said this for a while and stick to our notion of not fighting the Fed. Pushing aside any notion of interest rate cuts, we are still sitting with a growing U.S. economy, especially when compared to other developed nations, which eventually will be good news for equity markets. It is difficult to remain confident about markets when conflicting data exists, but long-term trends remain in place, and our outlook remains cautiously optimistic for 2024. Enjoy the quiet week, and reach out to your advisor at Valley National Financial Advisors for help or questions.

Current Market Observations

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By: Chief Investment Officer, William Henderson

The verdict is still out on which city is happier at this point: Kansas City for clinching another Super Bowl victory or Wall Street for closing the S&P 500 Index over 5,000 for the first time in history. Given the historic volatility offered up by Wall Street, we would take the permanence of the Super Bowl victory. However, last week proved to be another winning week for the markets, with each major market index closing higher. The Dow Jones Industrial Average was barely higher by +0.04%, while the S&P 500 Index was +1.37% and the NASDAQ higher by +2.44%. Keeping with the Super Bowl theme here, equity markets seem much more content thinking about wins than losses, and the thoughts of a recession have now moved to the way back burner. Readers of The Weekly Commentary know we have believed in the strength of the US economy for well over a year now and still believe we are in a growth phase, albeit potentially trending downward, but slowly. Fixed income markets performed poorly last week, with the 10-year U.S. Treasury bond yield increasing by 14 basis points to 4.17%.

U.S. Economy 

As mentioned above, the S&P 500 Index, widely understood to be a fair gauge of large capitalization stocks, closed above 5,000 for the first time in history. This is important because it truly shows the strength and resilience of the U.S. economy. See Chart 1 below from Valley National Financial Advisors and Y Charts showing the S&P 500 Index and the U.S. Gross Domestic Product since 1940. Market prognosticators and experts love to talk about the “Wall of Worry” or “the coming recession,” neither of which really matters over the long term, as you can see from the chart. The U.S. consumer, who continues to be gainfully employed, spends prolifically and churns out massive economic activity as a result. Our economy is consumer-driven, and overall, consumers are healthy, cash-rich, eager to spend, shop, and travel. If Punxsutawney Phil is correct and spring comes soon, we should continue to see healthy economic activity in the U.S.

Patrick Mahomes was the Super Bowl LVIII MVP, but the Wall Street MVP is the U.S. Consumer.

Policy and Politics 

Washington seems content to flounder and argue rather than pass any meaningful legislation regarding the border crisis or additional aid to Ukraine or Israel. With the presidential election starting to take center stage, we believe Washington will be less likely to pass anything not directly tied to the important government funding bill coming in March. Meanwhile, Fed Chairman Jay Powell is marching to his own drum chorus and staying put on rate cuts at least through March 2024. All the main Fed speakers that were out last week parroted Chairman Powell’s message: “We need to see inflation come down a bit more to make sure we are not cutting rates too soon.” This week, we will see important inflation data that will give the FOMC (Federal Open Market Committee) their sought-after data.

What to Watch This Week 

  • U.S. Core Consumer Price Index YoY for Jan ’24, released 2/13/24, prior 3.90% 
  • U.S. Inflation Rate for Jan ’24, release 2/13/24, prior 3.35% 
  • U.S. Job Openings Total Nonfarm for Jan ’24, release 2/14/24, prior 9.026M 
  • U.S. Core Producer Price Index YoY for Jan ’24, released 2/16/24, prior 1.76% 

New records are reached every year whether in sports, industry, or Wall Street. We love to see records broken as much as the next person, but the real story is the one where investors stick to their long-term investment plan thereby building truly generational wealth. There are plenty of reasons to expect equity markets to grow this year but there are always risks. Risk drives returns, and the management of risk over prolonged periods increases returns. The goal of a true investor is to increase returns while managing and limiting risk. Reach out to your financial advisor at Valley National Financial Advisors for assistance. 

Current Market Observations

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We all know that streaks are meant to be broken, and last week, we broke the nine-weeklong streak of positive weekly gains in the stock market. It was to be expected as early in the year, many movements take place that bring stocks down, such as the beginning of the year’s positioning after year-end tax-loss harvesting. Either way, all three major indexes started off 2024 in the negative, with the Dow Jones Industrial Average falling –0.65%, the S&P 500 Index falling –1.80%, and the NASDAQ falling –3.78%. Looking at the Top Gainers vs. Top Losers in 2024, it seems like the opposite of 2023, which is comical. Apple, the big winner in 2023, is now the biggest loser! Oh, what a few days make in the efficient stock market. Articles and pundits everywhere are already talking about the end of Apple. We will keep watching the data. In the fixed-income markets, bonds also sold off last week, with the 10-year U.S. Treasury increasing by +0.17% to end the week at 4.05%. The yield curve (the slope of the line between 2-year yields and 10-year yields) remains inverted as it has been for over a year – with nary a recession in sight. 

U.S. Economy 

Last week saw an unexpected pop in the labor market, with Nonfarm payrolls increasing by 216,000 (higher than economist expectations) and the unemployment rate holding steady at 3.7%. This pair of data points set the stage for 2024, where labor continues to fuel economic expansion. Moreover, the Fed’s long sought-after “Goldilocks Soft-Landing” looks like a real possibility. The dramatic rise in interest rates over the past two years to slow inflation has not slowed the economy so much that we rolled into a recession. While this is good news for the economy, we must state that rate hikes take a long time to impact the economy, and we could still see some impacted slowdown ahead as we move forward. When cost-cutting is needed due to a slowdown in a service-based economy, the first thing to cut is jobs.

Policy and Politics 

Washington gets back to work this week (we say that with all the best intentions and not sarcasm), and the first item on the agenda will be funding the government before a partial shutdown on January 19, 2024. Each side will try to tie funding the government to border security and aid for Israel and Ukraine. With the billions of dollars flowing out of the U.S. for wars, it is hard not to feel the pressure on our own budget. Holding funds for our government to operate hostage because of funds desired for foreign operations seems anathema, but we are investors, not politicians. Of course, next week is the Iowa Caucus (January 15), and the week after that (January 23) is the New Hampshire Primary. We will then be moving into the full presidential election cycle. 

What to Watch This Week 

  • U.S. Inflation Rate for Dec 2023, released 1/11, prior rate 3.14% 
  • U.S. Consumer Prince Index Ex Food & Energy for Dec 2023, released 1/11, prior 4.01% 
  • U.S. Initial Claims for Unemployment for week of Jan 6, 2024, released 1/11, prior 202,000. 
  • 30-year Mortgage Rate for week of Jan 11, 2024, released 1/11, prior 6.62% 
  • U.S. Producer Price Index Ex Food & Energy for Dec 2023, released 1/12, prior 1.97% 

One week does not make a year or a market. Last week’s returns were attributed to positioning and the prior year’s tax loss harvesting. It is comical to see the economic press turn on Apple as fast as they did – from darling to dud in 5 days. From personal experience, the results received from Apple products like the iPhone, iTunes, and Apple TV+ are still positive in a meaningful way. As Fed Chairman Jay Powell continues to navigate the rate path in 2024, it is evident that we are not in the “pivot” stage where the next move from the Fed in rates is down. Of course, the timing of rate cuts is the real question. Markets are pricing in a March 2024 rate cut, and we think that may be a little too soon, given the economy’s continued strength, especially in the labor market. We will watch the data, pay attention to corporate earnings reports, and follow the news regarding world events and major elections. Reach out to your advisors at Valley National Financial Advisors for questions or help.

Current Market Observations

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If it were not so close to Christmas, we would suggest we put a red stocking cap on Fed Chairman Powell and call him “Santa Claus,” given the Santa Rally we have had over the last seven weeks. Last week, we added another 3.0% to the major stock market indexes, bringing each well into double-digit territory on a year-to-date basis (see figures immediately below.) Of course, I am referencing Chairman Powell’s press conference last week after the FOMC (Federal Open Market Committee) meeting, where he reaffirmed the notion that inflation does not need to reach 2.00% for the Fed to start cutting rates. This comment gave the markets all they needed to prepare for lower rates in 2024. This will help all major market indexes, especially small capitalization stocks that rely heavily on borrowing for standard business activities. Further, in a stunning move lower, the 10-year US Treasury dropped 32 basis points on the same news to close the week at 3.91%.

U.S. Economy 

As mentioned above, the FOMC kept interest rates unchanged for the third meeting in a row, signaling the long-awaited “Fed Pivot,” meaning monetary policy moves from a tightening stance (increasing interest rates) to an accommodating stance (lowering interest rates). The Fed Funds Futures markets are pricing in rate cuts as soon as March 2024, yet the FOMC members do not see rate cuts until September 2024. Our moves in 2023 were all based on the data, particularly our call for “no recession in 2023.” We will continue to follow the data as we assess the true path of rate cuts in 2024. All parts of the U.S. economy continue to point to growth and expansion, at least into early 2024. Our thoughts are that the Fed will watch the data as well. 

Policy and Politics 

  • While Washington, DC, is closed for the holidays, we are looking to January 2024, when budget talks will need to start quickly to avoid the risk of a government shutdown. Next year remains a presidential election year, so we also expect minimal disruption from Washington so President Biden can point to the healthy U.S. economy while campaigning for reelection. 
  • Globally, we are ramping up our concerns about the Israel/Hamas War and the risks of it spreading beyond the localized region. Rockets flying between Israel and Hezbollah in Lebanon and Yemeni militants seizing shipping tankers in the Red Sea have caused enough chaos that shipping firms, including Maersk and B.P., have either paused or re-routed container and oil tankers. While there is not yet a major military escalation, the disruption in shipping and supply chain management will cause problems in the global economy. Thus far, oil, a major commodity of the Middle East, has yet to react to the problems. See Chart 1 below from Valley National Financial Advisors and Y Charts showing WTI Crude Oil and Retail Gas Prices. Both continue to fall, with the U.S. Average retail price of gasoline hitting $3.26/gallon. Petroleum is a critical component of manufacturing and transportation and a key to keeping inflation at bay. 

What to Watch 

  • U.S. Real GDP (Gross Domestic Product) Quarter over Quarter for 3rd Quarter 2023, released 12/21/23, prior +5.20% 
  • 30 Year Mortgage Rate for week of December 21, 2023, released 12/21/23, prior 6.95% 
  • U.S. Core PCE Price Index Year over Year for November 2023, released 12/22/23, prior 3.46% 
  • U.S. Index of Consumer Sentiment for December 2023, released 12/22/23, prior 69.40. 

Thus far, 2023 has rewarded the patient investor with solid gains across all major stock and bond market indexes. We have seen the economy defy all the so-called experts who predicted a recession in 2023 and instead continue to grow and expand at a healthy pace. Employment remains strong, with a national unemployment rate of 3.7%. The housing market has thrived, and 30-year fixed mortgage rates are below 7.00%. This week, we will see earnings from various companies, including Nike and Accenture. Earnings are important as they prove that companies are still making money and, therefore, employing workers. While we appreciate markets’ gains this year, we continue to watch events unfolding in the Middle East with concern. Higher interest rates are off the table, but the markets may be pricing in rate cuts sooner than reality will prove. There are seven trading days left in the year, and Santa is just a few days away. Happy Trading!

Current Market Observations

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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.

Current Market Observations

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Equity markets notched another modest win last week, with all major indexes reporting gains (see year-to-date numbers below). We typically only point out the major indexes here at Valley National Financial Advisors, but last week saw gains in small capitalization stocks, a sector left out of this year’s market rally. As measured by the Russell 2000 Index, small caps gained +5.5% last week, which also shifted their year-to-date return into positive territory at +3.5%. A rally in small-cap stocks has been long overdue as most of the big gains this year have been in large-cap and even mega-cap stocks like the “Magnificent Seven.” An equity market rally balanced across all sectors and includes deep depth and breadth of all capitalization stocks rather than just large or mega-cap is healthier and more sustainable over longer periods. Bonds also continued their rally, with the 10-year U.S. Treasury falling 18 basis points to close the week at 4.44%. 

US Economy 

Last week’s equity gains were precipitated by the inflation data released mid-week. The U.S. Inflation Rate fell to 3.24% for October, down from an August 2022 high of 9.06%. See Chart 1 below from Valley National Financial Advisors and Y Charts showing the U.S. Inflation Rate and the U.S. Core Producer Price Index. While the U.S. inflation rate is not yet at the Federal Reserve’s target rate of 2%, the rate has come down dramatically. Furthermore, as we have stated many times here at Valley National Financial Advisors, interest rate hikes take time to work their way through the economy; therefore, even without further rate increases, the inflation rate should continue to track downward from here, given all the tightening that has occurred over the past 18 months. This view, shared by most economists, confirms that the Fed will remain on the sidelines, refraining from further intervention and instead watching and interpreting the data. 

Policy and Politics 

We have talked about global turmoil often and how global issues create uncertainty and fear—both of which markets hate. The Ukraine/Russia War continues to languish well into its second year. Further, the Israel/Hamas War shows no signs of abating. Thankfully, last week’s APEC Summit in San Francisco and the meeting of Chinese President Xi Jinping and President Biden may help to revive the recently cool relations between China and the U.S., the world’s two largest economies. Both countries are moving past pandemic-related inflation periods and experiencing growing economies, so healthy relationships rather than trade wars or tariff spats are important going forward.

What to Watch 

  • We have a Thanksgiving Holiday shortened trading week so Wall Street will be quiet but Main Street will be all buzz on Friday as the Holiday Season will kick off with Black Friday sales hitting the retail space. Next week Cyber Monday starts and by the end of the week we will have some idea of the consumer’s appetite for shopping and spending as many retailers will report 3rd quarter earnings.  

Everyone agrees that the U.S. has avoided a recession in 2023, and the outlook for 2024 is starting to look equally rosy. We remain cautiously optimistic about the markets and the economy, as we have been for over a year. The Fed may be done with interest rate hikes, but even if more hikes are coming, they will be modest, if at all, and minimally impactful. Investors have been rewarded this year for staying the course and remaining invested, a path that is often painful. According to the Nation Retail Federation, consumer spending is expected to be 3-4% higher this holiday season. The U.S. consumer has remained resilient all year and continues to support the economy. Reach out to your financial advisor at Valley National Financial Advisors for help and advice, but more importantly, enjoy the Thanksgiving Holiday Weekend.