Category Archives: The Markets

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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Equity markets ended last week by setting new all-time high records for the Dow Jones Industrial Average (+0.41%) and the S&P 500 Index (+1.25%), while the NASDAQ notched another winning week as well (+2.28%). Last week, the modest but record-setting move placed all three indexes in the green on a year-to-date basis (see numbers immediately below). The early slowness we saw in equity markets thus far in January resulted from investors and markets accurately resetting the timing and pace of the coming Fed rate cuts. At the end of 2024, futures markets were pricing in Fed rate cuts (often deemed positive actions for equity markets) as soon as March 2024. We have said previously, and stick to the conviction, that March was too soon and the likely path to lower Fed Funds Rates would be closer to June 2024. Futures markets have moved from a 100% chance of a cut in March to a 50% chance, which we believe is more accurate as inflation still has a bit more cooling to do before it settles around 2.00%. Interest rates increased last week, with the 10-year U.S. Treasury rising 19 basis points to 4.15%. Some strong economic data was released last week, including 4th quarter retail sales and consumer sentiment, which we will detail below.

U.S. Economy 

As mentioned above, U.S. Retail & Food Service Sales jumped +0.55% for December 2023, up from +0.35% for November 2023 and above the long-term average of +0.40%. This was confirmation that the year-end holiday shopping season was strong and, importantly, shows that consumers are not yet too tired to continue fueling the growing U.S. Economy. On the heels of that news, the U.S. Index of Consumer Sentiment, as the University of Michigan reported, jumped to 78.8, well off the recent low of 50.0 set in 2023. See Chart 1 below from Valley National Financial Advisors and Y Charts. It is important to note that a rising consumer sentiment index shows increased consumer confidence, which is generally evident in economic expansionary periods. While not the only predictor of future economic growth, this measure tells us what the consumer thinks about the future. This week, we will see real economic data when the 4th quarter of 2023 GDP is released. Additionally, we continue to monitor corporate earnings releases, which thus far have beaten, frequently softer, Wall Street analysts’ expectations.

Policy and Politics 

In positive news, the U.S. has avoided an embarrassing government shutdown as the dueling parties finally reached a budget deal. This week is the New Hampshire primary, where we get further indications of the presidential candidates for U.S. President in November 2024. While it is a foregone conclusion that President Biden will be the Democratic candidate, with Florida Governor Ron DeSantis dropping out, we are down to Nikki Haley and former President Donald Trump on the Republican ticket. All we have to say in this regard is that drama will follow. Markets are efficient, but politics are not. Stay tuned because as we move into the South Carolina primary and Super Tuesday in March, the final presidential battle will be formed.

What to Watch This Week 

• U.S. Durable Goods Monthly Orders for Dec 2023, released 1/25, prior 5.39%
• 30-year US Mortgage rate for week of Jan 25, released 1/25, prior rate 6.60%
• U.S. Initial Claims for Unemployment Insurance for week of Jan 20 released 1/25, prior 203,250.
• U.S. Core PCE Price Index for Dec 2023, release 1/26, prior 3.16%
• U.S. Real GDP for 4th Quarter 2023, released 1/26, prior 4.90%

It is not news to The Weekly Commentary readers that the U.S. economy is ~70% consumption-based, meaning U.S. Consumers drive the largest part of the U.S. economic growth. Consumer sentiment is rising, and U.S. unemployment remains at historic low levels (3.6%). This is a simple equation – Americans are working, feel good about the economy, and will continue to spend. However, globally, turmoil and unrest abound. China continues to founder and is struggling to reach government-invented GDP targets. A brief look at headlines from the Middle East drums up issues that have lasted 75+ years with no end in sight for the Israel/Hamas War. The conflict has bubbled over into Iran, Yemen, and Lebanon and has impacted Red Sea commerce. The Russia/Ukraine War will soon move into its 3rd year, with no end in sight. While it is easy to see the U.S. as an island and immune to the World’s problems, our involvement with every conflict is usually inevitable. We expect markets to underprice the global turmoil and focus instead on eventual Fed rate cuts in 2024 as inflation moves closer to the Fed’s target of 2.00%. Corporate earnings growth in 2024 remains important, and we expect technology to remain the driver of growth and expansion this year. Expect volatility all year – but every year brings volatility, as we all know by now. Please reach out to your 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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Equity markets proved resilient for one week and ended the year on a positive note for the week and year. The Dow Jones Industrial Average notched higher by +0.80%, the S&P 500 Index moved higher by +0.49%, and the NASDAQ moved higher by +0.32%. This was the ninth positive week for major stock indexes in 2023 and wrapped up a banner year overall for markets (see year-to-date figures immediately below). Another important data point is that 2023 marked the fourth positive year of the previous five years for the broadly followed S&P 500 Index, with only 2022 showing negative results. Also, important to note for 2023 was the positive impact on the bond market. The Bloomberg U.S. Aggregate Index (a widely followed barometer for the bond market) returned +5.53% for 2023, giving those investors counting on fixed-income returns a welcomed result. 

U.S. Economy 

As we mentioned each week last year, the U.S. Consumer remained resilient and carried the U.S. Economy for much of the year. We saw strong annual spending in travel & leisure and overall retail spending. Early reports for the 2023 holiday season show retail sales growing by +3.1% and online shopping rose by +6.3%. While these numbers were lower than in 2022, they still show robust consumer spending.  

Financial markets are already pricing in rate cuts by the Fed for 2024. One area where we are seeing moving in rates is mortgage rates, which have fallen from recent highs near 7.80% to 6.61% before any actual cuts in rates by the Fed. See Chart 1 from Valley National Financial Advisors and Y Charts showing the 30-year mortgage rate over the past year. As mortgage rates fall, the housing industry will get a boost as affordability for new or existing homes will increase for all consumers.  

Policy and Politics 

Legislators and policymakers do not return to Washington, DC, until next week. Top on their agenda will be working out a funding agreement for the U.S. Government. The current funding agreement ends on January 19, and a new budget is needed to avoid a partial government shutdown. With 2024 being a major election year, we expect lawmakers to avoid looking any worse than they already do and, therefore, avoid embarrassing events like government shutdowns. Super Tuesday (the day when the greatest number of U.S. states hold presidential primary elections) is just 63 days away! 

What to Watch 

  • U.S. Initial Claims for Unemployment Insurance for week of Dec 30, 2023, released 1/4/24. 
  • 30-year Mortgage Rate for week of Jan 4, 2024, released 1/4/24, prior 6.61% 
  • U.S. Unemployment Rate for Dec 2023, released 1/5/24, prior 3.70% 
  • U.S. Labor Force Participation Rate for Dec 2023, released 1/5/23, prior 62.80% 
  • U.S. Non-farm Payrolls MoM for Dec 2023, released 1/5/24, prior 199,000. 
  • U.S. Recession Probability for Dec 2024, released 1/5/24, prior 51.8% 

While it may be fitting for readers of The Weekly Commentary to take a victory lap after 2023’s stellar returns for stock and bond markets, we would rather readers continue to follow the data. All year in 2023, we followed the data – watching the consumer, understanding the housing market, reading employment numbers, and understanding that if Americans are working – they are spending, and consumption is critical to the U.S. economy. Long-term investors were rewarded in 2023 for sticking to their plan and understanding that consistency and patience are the key to investing and gathering long-term wealth. Wall Street prognosticators and economists waited for a recession in 2023 that never arrived. Meanwhile, cautious optimism prevailed simply by following the data. 2024 is just starting, but our advice remains the same, stay invested, stay focused, and follow the data. Happy New Year.

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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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 

  • U.S. Real GDP (Gross Domestic Product) QoQ (Quarter Over Quarter) for Q3 2023, released 11/29, prior rate 4.9% 
  • U.S. Core PCE (Personal Consumption Expenditure) Price Index YoY (Year Over Year) for October 2023, released 11/30, prior rate 3.68% 
  • U.S. PCE Price Index YoY for October 2023, released 11/30, prior rate 3.44% 
  • U.S. Initial Claims for Unemployment for week of 11/25/23, released 11/30, prior 209,000.

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

Current Market Observations

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We will talk about market headwinds and tailwinds later in the report, but for now, let us just talk about what the markets did last week and year-to-date to remind investors where we really are and what the markets have done. Last week, the Dow Jones Industrial Average added +0.7%, the S&P 500 Index notched a +1.3% return, and the NASDAQ added +2.4%. These returns pushed year-to-date figures higher for each major index, with the Dow at +5.3%, the S&P 500 at +16.6%, and the mega-tech heavy NASDAQ at 32.8%. Certainly, few investors own only index-based investments or only mega-tech equities. Still, most investors with balanced portfolios own a slice of each and, therefore, have captured their risk-related slice of these market returns thus far in 2023. Bonds moved little last week, with the 10-year U.S. Treasury closing at 4.62%, five basis points higher than the previous week.

Global Economy 

There continues to be sufficient geopolitical global turmoil to worry us at Valley National Financial Advisors. The Israeli/Hamas War shows no signs of abating, while the Russia/Ukraine War has dragged on for almost two years; both wars are overheating the already unsteady markets for oil, natural gas, and some food commodities like wheat and creating an ongoing humanitarian crisis. On the flip side of bad news, Chinese President Xi Jinping will meet with President Biden this week in California in a move that officials on both sides hope will ease tensions in the important bilateral relationship between the U.S. and China. While these three events seem distant from the U.S. equity markets, they individually and collectively add uncertainty to the markets, which everyone who reads The Weekly Commentary knows we hate.

Policy and Politics 

In the continuing saga of Washington, DC’s version of “The Gang That Couldn’t Shoot Straight,” we are three days away from another government shutdown. The newly elected Speaker of the House, Mike Johnson, must bring together the contentious parties from both sides of the aisle to pass a budget bill before Friday, November 17, to avoid a government shutdown. While a lot of the actions and bargaining going on in Washington are in partisan brinkmanship, the farce of a looming U.S. Government shutdown has real market implications. For example, last week, the credit rating agency Moody’s lowered the outlook on the U.S. Credit to “negative” from stable, citing large fiscal deficits and declining debt affordability. Moody’s move followed a rating downgrade by another rating agency, Fitch, to A.A. from AAA earlier this year. Although the actions by rating agencies do not have any real market implications, as U.S. Treasury bonds still represent the “risk-free” market measure, moves like this slowly chip away at investor confidence and place a finer negative global spotlight on the U.S. 

What to Watch 

  • Monday, November 13th  
    • 4:30PM: Retail Gas Price (Prior: $3.52/gal.) 
  • Tuesday, November 14th  
    • 8:30AM: U.S. Consumer Price Index MoM/YoY (Priors: 0.40% | 3.70%) 
    • 8:30AM: U.S. Core Consumer Price Index MoM/YoY (Priors: 0.32% | 4.13%) 
  • Thursday, November 16th  
    • 8:30AM: Initial Claims for Unemployment Insurance (Prior: 217,000) 
    • 10:00AM: NAHB/Wells Fargo U.S. Housing Market Index (Prior: 40.00) 
    • 12:00PM: 30-Year Mortgage Rate (Prior: 7.50%) 
  • Friday, November 17th  
    • 8:30AM: U.S. Building Permits (Prior: 1.473M) 
    • 8:30AM: U.S. Building Permits MoM (Month Over Month) (Prior: -4.41%) 
    • 8:30AM: U.S. Housing Starts (Prior: 1.358M) 
    • 8:30AM: U.S. Housing Starts MoM (Prior: 7.01%) 

We have focused on quite a few negative notions this week, which we know is a bit out of character, but there are plenty of positive things to highlight. Contrary to most economists, the U.S. has avoided a recession in 2023, and it looks like 2024 will continue our growth pattern, at least into the first half of the year. Further, inflation has come down from 9% to 3% in just over a year, which means the Fed and most other global central banks are nearing completion in their interest rate hiking cycle. Corporate earnings remain healthy, with most companies reporting earnings that beat Wall Street expectations. Lastly, while the consumer may be getting understandably tired of supporting the economy with their spending, we expect consumer spending to continue well into 2024, especially during the 2023 holiday season. The markets are efficient and always look well into the future rather than watching the past. Investors would do well to do the same. Reach out to your financial advisor at Valley National Financial Advisors for help or questions.