We hope everyone had a wonderful Thanksgiving last week!
Markets ended higher during the holiday-shortened trading week. In an encouraging sign of broadening participation, about 55% of S&P 500 stocks were trading above their 200-day moving average as of Friday morning, more than doubling since the end of October. Moreover, the equal-weight S&P 500 increased 3.2% last week. That was substantially more than the 2.2% rise for the market-cap weighted S&P 500 and the largest percentage point outperformance for the equal-weight index in almost five months.
Sentiment is improving according to the most recent AAII Sentiment Survey. The percentage of bullish investors increased slightly to 45.3%, coming in above the historical long-term average of 37.5%. Bearish investors declined to 23.6%, below the historical average of 31.0%. The overall report continues to reflect building bullish market sentiment as markets during this recovery.
Fixed Income Higher
The Bloomberg Aggregate Bond Index rebounded this week as Federal Reserve (Fed) minutes helped anchor expectations for an end to monetary tightening. In addition, high yield bonds gained from lost ground last week.
The last few years have been challenging for fixed income investors, with 2022 going down as the worst year on record for the Bloomberg Aggregate Bond Index. And while 2023 was supposed to be the year for bonds, fixed income returns for most core bond categories have only recently turned positive for the year. The end of the Fed rate hiking campaign, the potential for equity like returns (without equity like risks), and the ability for income-oriented investors to generate attractive income again are reasons we’re optimistic for fixed income.
Commodities Mixed
Oil prices finished marginally lower. A key OPEC+ meeting was delayed this week until November 30 as the oil cartel worked out disagreements over production quotas. Precious metals increased, with gold rebounding from two weekly declines as the dollar traded lower. The landscape for copper demand improved given China’s initiatives to revive its economy. The country may allow its banks to offer unsecured short-term loans to qualified property developers.
Economic Weekly Roundup
November FOMC Minutes
There were no major surprises in the Fed minutes as the committee seems to be unanimous with proceeding carefully. The committee seems to be in a “wait and see” mode, willing to be patient as more data helps clarify the inflation trajectory. Markets should expect Chairman Powell and other committee members to remain hawkish in tone, but that does not necessarily imply the Fed will hike further. Markets expect the next move to be a rate cut by mid-2024. The dollar gained a bit leading up to the release of the minutes but showed little reaction after the release.
Michigan Sentiment Revised
The University of Michigan revised up November consumer sentiment, but the index still remains below October levels. Markets will probably not like the upward revision to the 12-month inflation expectations, now at 4.5%. Consumer sentiment fell in November but not as much as originally reported. Despite the upward revision in November, sentiment has still fallen for the last four months. The trajectory is clearly downward and implies consumers will be less willing to spend relative to previous months.
October Leading Economic Index
The October Leading Economic Index fell to the lowest since May 2020, as fewer new orders last month suppressed the Index. The inverted yield curve continues to signal stress in the bond market as the economy slows after a very strong third quarter. The low level of new orders is potentially a more convincing indicator than the inverted yield curve, although both are flashing red. Growing building permitting activity contributed positive support for the fourth consecutive month.
October Existing Home Sales
The pace of existing home sales in October was the slowest since mid-2010 when the housing market was reeling from the Great Financial Crisis. The low inventory of existing homes on the market is keeping median prices elevated. In October, the median sales price dipped but is still significantly above pre-pandemic levels. A record number of Americans hold no mortgage and with high mortgage rates, homeowners will likely stay put, keeping inventories at very low levels.
Weekly Employment Report
Initial claims came in below the prior week as well as analyst expectations. Moreover, the same occurred with continuing claims, reversing eight straight weeks of increases. We believe the labor market is expected to further loosen over the coming months as companies respond to slowing demand, partly driven by the Fed’s tighter monetary policy.
Week Ahead
The following economic data is slated for the week ahead:
Monday: Leading Indicators (Oct)
Tuesday: Existing home sales (Oct), Conference Board Consumer Confidence (Nov)
Wednesday: Weekly initial and continuing unemployment claims, durable orders (Oct), FOMC Minutes
Thursday: Personal Income & Spending (Oct)
Friday: PMI composite (Nov), S&P Global PMI Manufacturing and Services (Nov)
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