Tune in Wednesday, 6 PM, “Your Financial Choices” on WDIY 88.1 FM. Join Laurie for Topics of Financial Planning Interest.
Questions can be submitted at yourfinancialchoices.com in advance of the live show. Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.
Interesting Facts about Hanukkah:
To learn more about Hanukkah, visit 30 Amazing Facts About Hanukkah.
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
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.
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five- and 10- year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Mortgage Bankers Association.
MARKET HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.
“You don’t have to see the whole staircase, just take the first step.” – Martin Luther King Jr.
Tune in Wednesday, 6 PM, “Your Financial Choices” on WDIY 88.1 FM. Laurie and her guest Bill Henderson, Chief Investment Officer at Valley National Financial Advisors will be discussing: 2023 Market Wrap Up and 2024 Predictions.
Questions can be submitted at yourfinancialchoices.com in advance of the live show. Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.
It is a fantastic day to come together and encourage generosity. According to GivingTuesday.org, it is a day that encourages people to do good, an idea that, over the years, has grown into more than just one day. There are so many different ways to show generosity on GivingTuesday. Learn more about GivingTuesday; visit GivingTuesday for more information.
Last week continued the month-long rally we have witnessed across all markets and sectors, with the Dow Jones Industrial Average adding +1.3%, the S&P 500 Index adding +1.1%, and the NASDAQ adding +1.0%. Year-to-date returns also remain healthy across all market indexes (see figures below). Small-capitalization stocks, which have been absent all year, added another +1.9% last week, bringing the year-to-date returns to +4.1%. We point this out as a needed broadening in the 2023 stock market rally to sectors beyond the “Magnificent 7” mega-cap tech stocks into small-cap and industrial names. The month-long stock market rally has been predicated on three issues: softening inflation data, positive earnings releases from U.S. corporations, and a widespread belief that the Federal Reserve is done raising interest rates. The 10-year U.S. Treasury bond closed the week at 4.47%, three basis points higher than last week’s close.
Global Economy
While global unrest and turmoil continue with the Russia/Ukraine and Israel/Hamas war, both conflicts remain regional and have not yet spilled over into 1) a greater European region or 2) the larger Middle East, as #1 could impact oil, natural gas, and food prices and #2 could impact oil prices. Both situations remain horrible humanitarian events and will eventually garner sufficient international pressure to resolve the conflicts. As mentioned, the impact on oil prices from either conflict has been minimal, at least since the initial spike in March 2022. Oil is a key ingredient in many industrial and consumer materials well beyond simply energy. A falling oil price goes a long way in the continued inflation fight. See Chart 1 below from Valley National Financial Advisors and Y Charts showing the price of a barrel of oil.
Global and US Policy and Politics
U.S. politics have reached their yearly quiet period where lawmakers, having passed budget resolutions until early 2024, return to their home states and families for the holidays. Politics are not so sanguine in China, where profit growth is slowing in their industrial sector even as greater housing stimulus continues. According to the Chinese National Bureau of Statistics, industrial profits increased by +2.7% in October from 2022, versus increases of +11.9% in September and +17.2% in August. China is the world’s second-largest economy and remains important to the U.S. and elsewhere.
What to Watch
We had a quiet, holiday-shortened week last week, but the markets continued their November rally with all major sectors participating. Early thoughts from retailers are that Black Friday sales were strong, and early Cyber Monday sales look to be strong as well. Is this the start of the “Santa Claus Rally?” As readers of The Weekly Commentary know, we do not invest in short-term rallies or bank on Santa Claus for market returns. We preach the importance of long-term investing, ignoring the noise from Wall Street, and sticking to your investment plan; any help from Santa is just gravy for investors. There are few
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five- and 10- year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Mortgage Bankers Association.
MARKET HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.
“Go out each day with the attitude that something good is going to happen to you.”–Joel Osteen