Weekly Market Update – November 24, 2023

Quick Takes

• U.S. stocks have been positive for every week in November. The S&P 500 was up +1.0% last week, putting it on course for the best month since July 2022. The Nasdaq Composite Index was up +0.9%, and the small-cap Russell 2000 Index advanced +0.5%. 
• After notable drops the prior week, yields were up modestly last week. The yield on the benchmark 10-year U.S. Treasury note was up +3 basis points for the week to 4.47%. The Bloomberg U.S. Aggregate Bond Index slipped a tick, down -0.1% for the week.
• Overall, economic data continued to come in soft. Existing Home Sales dropped in October to the lowest level since 2010. The Leading Economic Index (LEI) fell for the 19th month in a row. The preliminary “flash” S&P Global U.S. PMIs showed a tepid pace of expansion.

Stocks extend November win streak, but bonds were flat

U.S. Stocks closed higher over a quiet holiday-shortened trading week, with markets closed Thursday for the Thanksgiving holiday and closed early on Friday. It was the fourth consecutive week of gains for stocks, with the S&P 500 Index up +1.0% for the week, on pace for its best month since July 2022. The Nasdaq Composite Index was up +0.9% for the week, and the small-cap Russell 2000 Index advanced +0.5% following the prior week’s +5.4% surge. Of course, there was no break for Thanksgiving overseas, but developed market international stocks (as measured by the MSCI EAFE Index) were also up +1.0%, while the MSCI Emerging Markets Index was up +0.4%. 

After notable drops the prior week, yields were up modestly last week. The yield on the benchmark 10-year U.S. Treasury note was up +3 basis points for the week to 4.47%. The shorter-end 2-year U.S. Treasury note yield was up more, gaining +3 basis points to close at 4.95%. The Bloomberg U.S. Aggregate Bond Index slipped a tick, down -0.1% for the week. Non-U.S. bonds (the Bloomberg Global Aggregate ex U.S. Bond Index), on the other hand, were able to advance +0.4% higher over the week. 

Despite the quiet holiday week, there were a couple of notable economic releases. On Monday, the Federal Reserve Bank of New York reported their quarterly Survey of Consumer Expectations Demand, which showed there has been a noteworthy drop in credit over the past year, with application rates at 41.2%, compared with 44.8% in 2022 and the pre-pandemic 2019 level of 45.8%. On Tuesday, the Federal Open Market Committee released the minutes from the October-November meeting that reaffirmed the stance among the majority of policymakers that interest rates should be held higher for longer. Monday’s N.Y. Fed consumer survey seemed to validate the FOMC stance. The policymakers noted that third-quarter GDP exceeded expectations but reiterated their belief that monetary policy should be kept sufficiently restrictive to bring economic growth below potential to drive inflation down to their 2% target. The FOMC agreed to “proceed carefully” with interest rates but wanted to remain restrictive “for some time” as they continue to be concerned with the risk of inflation, and therefore, the possibility of additional rate hikes remains on the table. On Wednesday, the Commerce Department reported that Durable Goods Orders had dropped -5.4% in October, marking the second-biggest decline since April 2020, though a big drop in highly volatile commercial aircraft orders was largely to blame.

Chart of the Week

The National Association of Realtors (NAR) reported that Existing Home Sales fell for the fifth straight month in October to the lowest level since 2010. Existing home sales make up most of the housing market and fell -4.1% to a seasonally adjusted annual rate of 3.79 million. That was below expectations for 3.90 million and the prior month’s 3.95 million, which was revised down from 3.96 million. Year-over-year existing sales are down -14.6%. The Midwest was the only region not to fall, remaining unchanged for the month. But the other regions were down, with the South falling the most, dropping -7.4%. On a year-over-year basis, home sales were down -15.3%. The Median Existing Home Price slipped to $391,800 from $392.8 the prior month but is up +3.4% from a year ago. Homes for sale fell to 1.15 million, up +1.8% from September but down -5.7% from a year ago. All-cash buyers made up 29% of sales for a second straight month, tied for the highest since January 2023.   

Existing Home Sales drop to lowest level since 2010

U.S. Existing-Home Sales

Note: Seasonally adjusted annual rate
Source: National Association of Realtors, The Wall Street Journal.

Economic Review

• The Conference Board’s Leading Economic Index (LEI) fell for the 19th month in a row in October, sinking -0.8%, worse than expectations for a -0.7% decline, which is where it was the prior month. At 104.6, the LEI is the lowest level since June 2020. The last time the index fell so many times in a row was during the Great Recession from the end of 2007 through 2009. Breadth of the index was negative, with six of the ten indicators tracked by the Conference Board negative, two unchanged, and just two positive. Non-Financial components, specifically New Orders and Consumer Expectations for Business Conditions, were the largest detractors for the second month, and all three Financial Component indicators, the Leading Credit Index, the S&P 500 Index, and Interest Rate Spread, were negative for a second straight month. “The U.S. LEI trajectory remained negative, and its six- and twelve-month growth rates also held in negative territory in October,” said Justyna Zabinska-La Monica, senior manager of business cycle indicators at the Conference Board.
• The final reading of the November University of Michigan Consumer Sentiment Index improved slightly to 61.3, up from the initial estimate of 60.4, but is down from 63.8 in October and far below the 22-month high of 71.6 recorded in July. It is the fourth consecutive month-over-month decline and now sits at a six-month low. The Current Economic Conditions component was up to 68.3 from 65.7 in the early estimate but is down from 70.6 the prior month. The Consumer Expectations component slipped to 56.8 from the preliminary 56.9 and is down from 59.3 the prior month. One-year inflation expectations jumped to +4.5% just above expectations and the prior month’s 4.4%. The five-year inflation expectations came in at 3.2%, just above expectations of 3.1% and the prior month’s +3.0, and in line with the preliminary estimate. The U.S. consumer remains fairly resilient but remains worried about inflation. 
• The preliminary “flash” S&P Global U.S. Purchasing Managers Indexes (PMIs) showed a shallow pace of expansion in early November, holding at the prior month’s 50.7. Levels above 50 indicate economic expansion, while levels below 50 indicate contraction. The Manufacturing PMI slid to a three-month low of 49.4, down from 50.0 the prior month, and missing expectations of 49.9. The manufacturing index has been in negative territory since last spring. The Services PMI improved to a three month high of 50.8 from 50.6 the prior month, beating expectations for 50.3. Firms are cutting jobs for the first time in three-and-a-half years as both service providers and goods producers reduced employment in November. On the positive side, inflation pressures softened in November as input prices fell to the slowest pace in more than three years.
• The Commerce Department reported Durable Goods Orders for long-lasting items such as televisions, appliances, and transportation equipment sank -5.4% in October, worse than expectations for -3.2% drop, mostly due to Boeing plane orders. The prior month was downwardly revised to a +4.0% gain from +4.6%. Durable Goods Orders Excluding Transportation were flat, slightly under expectations for +0.1%, and down from the prior month’s +0.2% (revised down from the originally reported +0.4%). The important Core Capital Goods Orders (nondefense capital goods excluding aircraft), a proxy for business spending, also slipped -0.1% following a -0.2% dip the prior month, which was revised down sharply from +0.5%. Higher borrowing costs appear to have discouraged companies from borrowing and investing as much, even excluding the highly volatile commercial plane orders.
• US economic activity fell in October, according to the Federal Reserve Bank of Chicago. The Chicago Fed National Activity Index (CFNAI) fell -0.49 from -0.02 the prior month (revised down from +0.02). That was far below expectations to remain unchanged. Readings below zero indicate below-trend-growth in national economic activity. All four broad categories of indicators used to construct the index deteriorated for the month and are now all in negative territory. The Production and Income indicators were the biggest drag on the index, down -0.33 from -0.4 the prior month.  Employment-related indicators were down -0.10 after being up +0.1 the prior month. Overall breadth was broadly negative, with 61 of the 85 monthly individual indicators making negative contributions, while 24 were positive.
• Weekly MBA Mortgage Applications rose +3.0% for the week ended November 17, following the prior week’s +2.8% gain. The Purchase Index was up +3.9% following a +3.3% advance the prior week, and the Refinance Index increased +1.6% following a +2.0% increase the prior week. The average 30-Year Mortgage Rate remained at 7.41% from the prior week, which is +0.74 percentage points higher than a year earlier.
• Weekly Initial Jobless Claims fell -24,000 to 209,000 for the week ended November 17, below expectations for 227,000 as well as last week’s 233,000 (revised up from 231,000). The number of people already collecting unemployment claims (i.e., Continuing Claims) fell -22,000 to 1,840,000 in the week ended November 11, below consensus for 1,875,000 and last week’s reading of 1,862,000 (revised down from 1,865,000).

The Week Ahead

The upcoming week’s highlights include the Federal Reserve’s preferred inflation measure, the Core Personal Consumption Expenditures (PCE) Index, which is released Thursday. It is expected to be up 3.5% from a year earlier versus an increase of 3.7% in the year through September. Thursday is the busiest day for reports and also includes the Bureau of Labor Statistics release of Personal Income and Spending, Pending Home Sales, the Chicago Business Barometer, and weekly Jobless Claims. Other economic data out during the week will include the Census Bureau’s New Home Sales on Monday, S&P CoreLogic’s Case-Shiller Home Price Index for September and the Conference Board’s Consumer Confidence Index on Tuesday, and the Institute for Supply Management’s Manufacturing (ISM) Purchasing Managers’ Index (PMI) for November on Friday, as well as Construction Spending.

Did You Know?

BARGAIN HUNTING – The headwinds of inflation, higher interest rates, waning savings, and the student loan payment resumption aren’t deterring Americans from going shopping. In fact, they might be encouraging them to do so as they try to spot a good deal in the current environment. Around 182 million people across the U.S. are forecast to shop in-store and online from Thanksgiving Day through Cyber Monday, marking the highest estimate since data tracking began in 2017 (Source: National Retail Federation, The Wall Street Journal).

TRADERS OUT SHOPPING – U.S. equity markets opened Friday morning at their normal time but were only open for three-and-half hours. Trading was muted with the slowest day for stocks since last year’s Black Friday, with just 4.9 billion shares trading hands in the shortened trading session. That is well below 2023’s average daily volume of 10.6 billion. Stock trading will resume in earnest on Monday (Source: The Wall Street Journal).

COFFEE BREAK – There are 6,800 Starbucks locations in China, compared with about 13,300 stores operated by rival Luckin Coffee. Luckin has surpassed Starbucks as China’s biggest coffee chain by sales and units, company reports show, a comeback for the Chinese company after an accounting scandal stalled its growth (Source: The Wall Street Journal).

This Week in History

BLACK FRIDAY IS BORN – In November 1951, the name “Black Friday” is believed to have first been used when a New York publication called the day after Thanksgiving Black Friday because workers weren’t showing up to factories, according to researcher Bonnie Taylor-Blake. Decades later, shopping on that date became an endurance sport as consumers queued up for hours to snag popular toys or doorbuster deals. Online shopping has enabled thrifty shoppers to hunt for bargains from the comfort of their own homes, so traffic isn’t quite as concentrated as it was years ago (Source: The Wall Street Journal).

Asset Class Performance

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by 30% US Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.