Week in Review: November 10, 2023

November 13, 2023

Recap & Commentary

Markets ended the week higher after spending most of it searching for direction. With a light economic calendar, earnings season winding down, the Fed not meeting again until mid-December, and after the S&P 500 entered correction territory at the end of October only to rebound with its best week in  a year to start November, investors seemed inclined to simply bide their time.

Friday saw the S&P 500 gain over 1.5% on limited news. In fact, the rally came a day after Fed Chair Jay Powell, speaking at an IMF conference, said that while he and other Fed members were “gratified” with the progress in lowering inflation, they are “not confident” that the Fed Funds rate is sufficiently restrictive to return inflation to the Fed’s 2% target.

Investors seemed to discount Powell’s comments, as evidenced by the limited reaction from Fed Funds futures, which left expectations for a December rate hike below 10%. Still, there will be two more inflation reports, and the November employment report, before the Fed’s next meeting. Given the Fed’s emphasis on data-dependence, markets will be watching incoming economic data closely. Should the data show continued economic resilience, and or stubbornly high inflation, that could manifest in heightened expectations for further rate hikes and renewed equity and bond market volatility.

Through Friday 92% of S&P 500 companies had reported 3Q23 earnings.  Thus far, 81% have beaten their consensus estimate. According to industry group FactSet, consolidated S&P 500 earnings growth is expected to be 4.1%, better than the 0.3% decline forecasted at the end of September.

Economic Commentary

Consumer sentiment declined for the fourth consecutive month in November on concerns about inflation and the ongoing wars in Gaza and Ukraine.  Sentiment fell 5% from October vs. expectations for little change. Since September, year-ahead inflation expectations have increased from 3.2% to 4.4% while 5-year expectations have increased from 3% to 3.2%, the highest level since 2011.

Total consumer credit, rose by $9B in September to $1.08T. Since last year, credit card balances have increased by $154B, marking the largest annual increase since 1999. While overall delinquencies remain below the pre-pandemic average, the share of newly delinquent credit card users rose to an 8% annualized rate in the 3rd quarter and now exceeds the pre-pandemic average.

The trade deficit expanded 4.9% in September to $61.5B, larger than the consensus forecast of $59.9B, as imports grew faster than exports.  Exports rose $5.6B, led by industrial supplies.  Imports rose $8.5B, led by cell phones and other household goods.  Since last year, exports have risen 0.5%, while imports have declined 2.7%. This year has seen a notable shift in US trading partners as well. Year-to-date imports from China have declined 24% from a year ago. Earlier this year Mexico overtook China as the top exporter to the US.

Of Note

After markets closed on Friday, Moody’s lowered its outlook on the US government debt rating from stable to negative.  The move follows a decision in August by Fitch to lower its credit rating from AAA to AA.  Though Moody’s left its credit rating unchanged at AAA, it cited factors similar to those expressed by Fitch, including, rising debt levels, higher interest rates, concerns about longer-term fiscal policy and political polarization, as reasons for its decision.

Market Indices   (As of 11/10/2023)

• Consumer Inflation (CPI)
• Producer Inflation (PPI)
• Housing Starts
• Retail Sales
• Industrial Production
• Weekly Jobless Claims