Week in Review: December 1, 2023

December 4, 2023

Recap & Commentary

Markets ended the week higher with the S&P 500 recording its 5th consecutive weekly gain, while ending the week at a new high for the year. The gains were aided in part by comments from Fed President Christopher Waller in which he said, “I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%.” While he also noted inflation remains “too high” and he isn’t sure that the Fed has “done enough” to achieve price stability, markets chose to focus on his more dovish comments.

After briefly entering correction territory at the end of October, November saw the S&P 500 enjoy its best month since July 2022 and in doing so, recoup all the losses it experienced between August and September. Growing expectations that the Fed has concluded its rate hike cycle helped propel the gains. Those same expectations drove interest rates lower, especially at the longer end of the curve. After briefly reaching 5% near the end of October, the 10-Year Treasury yield fell sharply to end November at 4.22%. The decline in yields fueled the Bloomberg US Aggregate Bond index’s best month since 1985, as it gained 4.5%

Economic Commentary

Core PCE, the Fed’s preferred measure of inflation, was in line with expectations, increasing 0.2% in October. The year-over-year comparison slowed to 3.5%, down from 3.7% in September.

Income and spending continued to grow in October with both increasing by 0.2%, slower than prior months. An increase in services spending was partially offset by declining sales of durable goods. In the last year, spending has increased 5.3%, while personal incomes have risen by 4.5%.

US manufacturing activity contracted in November for the 13th consecutive month. The ISM manufacturing index was unchanged at 46.7, slightly lower than forecasts. Both new orders and production were in contraction territory during the month. Order backlogs fell to 39.3 and are nearing one of the lowest points since the great financial crisis, suggesting slumping demand.

New home sales declined 5.6% in October to a 679K annualized rate. The median price fell nearly 18% from a year ago to $409K. The steep drop in new home prices likely reflects incentives and price cuts offered to buyers over the past year as mortgage rates have surged.  Pending sales of existing homes fared no better, declining 1.5% in October to the lowest level since 2001.

Of Note

A number of luminaries passed away during the week.

• Rosalynn Carter, First Lady of the United States from 1977 to 1981 died at 96. Carter was known as a strong mental health advocate.
• Henry Kissinger, who served as both national security adviser and secretary of state under President Nixon and helped shaped US foreign policy during the Cold War died at 100.
• Charlie Munger, vice chairman of Berkshire Hathaway, and business partner of Warren Buffet died at 99. Buffet credited Munger with helping to significantly shape his views on investing.
• Sandra Day O’Conner, the first woman to serve on the Supreme Court died at 93. O’Conner served on the court for 24 years and was often the key vote on a number of important cases.

Market Indices   (As of 12/01/2023)

• Nov. Employment Report
• ISM Services
• Consumer Sentiment
• Consumer Credit
• Factory Orders
• Trade Balance
• Weekly Jobless Claims