Week in Review: November 17, 2023

November 20, 2023

Recap & Commentary

Markets ended the week higher, boosted by better-than-expected consumer and producer inflation reports.  After briefly entering “correction” territory at the end of October, the S&P 500 has rebounded 9.6%, leaving it just 1.6% below its year-to-date high set at the end of July.

Tuesday’s consumer inflation report boosted hopes that the Fed may not have to pursue further rate hikes. That was evidenced by Fed Funds futures, which saw expectations for an additional 0.25% rate hike in January collapse, from ~22% to 0%. In addition, investors pulled forward expectations for the Fed’s first rate cut in 2024 from June to May.

Stocks and bonds both experienced strong gains on the heels of the consumer inflation report. Within equities, small caps jumped 5.4%, their largest one-day gain since November 2022. Bonds also enjoyed strong gains evidenced by yields on 2- and 10-Year Treasuries falling 0.22% and 0.19, respectively, their largest one-day declines since March. As a reminder, bond prices and yields move in opposite directions.

Through Friday, 94% of S&P 500 companies had reported 3Q23 earnings. Thus far, 82% have beaten their consensus estimate. According to industry group FactSet, consolidated S&P 500 earning growth for 3Q23 is expected to be 4.3%.

Economic Commentary

Last week’s busy economic calendar generally surprised to the upside. The Consumer Price Index (CPI) was unchanged in October, below consensus forecasts for a 0.1% increase. The year over year comparison fell to 3.2%, down from 3.7% in September. The index was held down by declining energy prices, which fell 2.5%, after significant increases in prior months.  Excluding food and energy costs, core CPI rose 0.2% vs. expectations for a 0.3% monthly increase.  Since last year, core prices have increased 4.0%. Shelter costs accounted for most of the increase to core CPI but saw the first meaningful slowdown since March. The index increased by 0.3%, compared to September’s increase of 0.6%.

US producer inflation fell in October, reversing a 3-month trend that saw energy costs putting upward pressure on prices. The Producer Price Index (PPI) declined 0.5% vs. expectations for a 0.1% increase and registered the largest monthly drop since April 2020. Core prices increased 0.1% during the month, also lower than expected. Final demand goods prices fell by 1.4% in October, with more than 80% of the decline attributable to falling gasoline prices.  Prices for final demand services were unchanged in October after six consecutive increases.

After an exceptionally strong 3rd quarter for retail sales, sales fell 0.1% in October vs. expectations for a decline of 0.3%. Spending declines on cars, furniture, and at gas stations were the top detractors in October.  Core sales, which exclude several of these categories and factor into GDP calculations, rose 0.2% vs. expectations for no growth.

Of Note

Congress prevented a government shutdown by passing a “laddered” continuing resolution. Under the plan, parts of the government, including the Departments of Agriculture, Transportation, Veterans Affairs, and Housing and Urban Development will be funded through January 19.  The Defense Department and the rest of the government will be funded through February 2.

Market Indices   (As of 11/17/2023)

• Existing Home Sales
• Manufacturing PMI
• Services PMI
• Consumer Sentiment
• Durable Goods Orders
• Weekly Jobless Claims