Week in Review: December 8, 2023

December 11, 2023

Recap & Commentary

Market returns, as measured by the S&P 500, extended their recent winning streak to six consecutive weeks. With 3Q23 earnings season completed and the Fed not meeting for another week, investors seemed willing to bide their time following the strong gains over the prior five weeks. Nonetheless, the week’s modest gains were enough to push the S&P 500 to a new year-to-date high.

The largest data point for the week was the November jobs report that came in better than expected. However, rather than spooking investors with regards to future Fed policy decisions, the report had virtually no impact. Part of that was due to other reports showing slowing labor market conditions as well as recent inflation reports pointing to continued slowing. For the Fed’s upcoming December meeting, as of Friday, markets were pricing in just a 3% chance of an additional rate hike, up from 1% a week prior. Looking ahead to 2024, as investor have increasingly embraced the idea that the Fed is done raising rates, markets are now pricing in 4-5 0.25% rate cuts in 2024, with the first expected to occur in May.  A month ago, markets were pricing in just three 0.25% rate cuts in 2024, with the first not one not expected until June.

Economic Commentary

Nonfarm payrolls increased 199K in November, better than the consensus expected 175K, due largely to job gains in the health care and government sectors. The unemployment rate, as measured by the household survey data, fell to 3.7% in November, from 3.9% in October. The number of employed individuals in the survey increased by 747K, helping to reverse a trend of upward pressure on the unemployment rate in recent months.  The jobs report also indicated continued pressure on labor costs.  Average hourly earnings rose 0.4% in November, an acceleration from October’s 0.2% increase. Since last year, average hourly earnings have increased 4%. Despite the strong report, evidence remains that the labor market could be slowly cooling.  Payroll gains in September and October were revised lower by 35K jobs, and earlier in the week the JOLTs report pointed to declining labor demand.  Job openings fell to 8.73M in October, well below expectations for 9.4M openings and the lowest level in over two years. The decline brought the job openings to available workers ratio down to 1.3, nearly in line with pre-pandemic levels.

The services sector continued to expand in November, as measured by the ISM Services index which rose 0.9 in November to 52.7, better than the 52.0 forecast. The new orders and business activity indices were both comfortably in expansion territory during the month and have remained higher than 50 every month this year. Fifteen of eighteen major industries in the services sector reported growth during the month.  The highest reading from any of the indices came from the prices paid index at 58.3, indicating that inflation is still a concern in the services sector.

Of Note

The FDA approved the first-ever treatment using the gene-editing tool CRISPR, ushering in a new era in medicine. The treatment, approved to treat sickle cell disease, works by editing the DNA found in a patient’s stem cells to remove the gene that causes the disease. The development of the gene-editing technology won its inventors the 2020 Nobel Prize in chemistry.

Market Indices   (As of 12/08/2023)

• Consumer Inflation (CPI)
• Producer Inflation (PPI)
• Retail Sales
• Mfg. & Services PMI
• Industrial Production
• Weekly Jobless Claims