S&P 500: 1.00% DOW: 1.27% NASDAQ: 0.89% 10-YR Yield: 4.47%
As Americans enjoyed celebrating the Thanksgiving holiday, the shortened week on Wall Street mirrored our post-feast sluggishness. Investors appeared to sustain recent stock market momentum, marking the S&P 500's fourth consecutive week of gains—providing bullish investors another point of gratitude. Bond market volatility seemed to ease this week, granting investors a moment to recalibrate their expectations for yields, stocks, and the economy. Traders are persist in pricing the possibility of significant Federal Reserve rate cuts next year, despite the Fed's pushback against this idea. However, the Fed repeatedly reiterates its commitment to data-driven decision making. If the economic deterioration that many expect given recent data releases comes to fruition, they should stand ready to intervene with more accommodative policy. Should this scenario unfold, the resilience and performance of equity markets remains uncertain.
Summary notes of the Federal Reserve's latest meeting reveal they are still concerned inflation may remain elevated
At the least, they said policy will need to stay “restrictive” until data shows inflation on a convincing trek back to the central bank’s 2% goal
The minutes gave no indication that members even discussed when they might start lowering rates
The key takeaway - Following their recent meeting, Fed Chair Jerome Powell reaffirmed the Federal Reserve's current commitment to a restrictive stance, intending to maintain this stance until economic indicators signal otherwise. According to the meeting minutes, this view appears shared among the committee members, who emphasized their dedication to eradicating inflation before contemplating any rate cuts. Despite this stance, market yields have dropped notably, reflecting expectations that not only has the Fed ceased hiking rates—practically a 0% probability according to markets—but also that the central bank might start cutting rates by mid-next year, potentially reducing them by as much as 100 basis points by the end of 2024. Should this scenario materialize, it would necessitate not just a decline in inflation meeting the Fed's criteria but also a deterioration in economic stability prompting the Fed to readjust its policies. Such an environment could pose challenges for economically sensitive assets, like stocks.
S&P Global said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, was unchanged at 50.7 this month
The manufacturing PMI slipped to 49.4 while the services PMI edged up to 50.6
The flash composite new orders index increased to 50.4 in November
The survey's employment index dropped to 49.7
The key takeaway - Across the economy, businesses appear to be holding onto moderate growth, exhibiting neither strong expansion nor contraction. However, underlying details hint at potential economic stress ahead. Firstly, although the new orders index saw a slight uptick this month, it was in contractionary territory for multiple moths previously. This report indicating a stagnant trend doesn't offer much hope for a reversal in this softer trajectory. Secondly, the employment data within this report suggests an impending weakness in the labor market and, consequently, the broader economy. Businesses have reported job cuts and some have enforced hiring freezes due to subdued demand combined with high price pressures. While further data is required to draw strong conclusions, the PMIs portray an economy currently holding its ground but possibly showing signs of vulnerability.
U.S. existing-home sales fell 4.1% in October to a seasonally adjusted annual rate of 3.79 million
Sales have fallen for five straight months and are down 14.6% from a year ago
The inventory of homes for sale was 1.15 million units, up 1.8% from September
The median price for an existing home was $391,800, up 3.4% from October 2022
The key takeaway - In mid-October, mortgage rates surged to a 20-year high, deterring potential buyers who might have considered the still elevated but less drastic rates observed at summer's end. This dampened demand, yet the supply side has remained remarkably tight, with current homeowners hesitant to sell and face the new interest rate landscape. Fortunately, there's hope for relief in the coming months. Borrowing rates have sharply declined since their peak, potentially enticing more buyers into action and potentially bolstering supply. This report indicates a slight uptick in existing units available for sale. If this trend of declining rates persists, it could trigger an increase in supply and help loosen this market.
From Around The Watercooler
Sam Altman was reinstated as OpenAI's CEO following a whirlwind that involved his dismissal, hiring by Microsoft, and ultimate return to a fresh board
Tiger Woods’s indoor golf league, TGL, will delay the start of its inaugural season to 2025 after the roof of a new arena collapsed, the league announced
Elon Musk’s SpaceX launched its uncrewed Starship rocket for a second test flight, but the booster and the spacecraft were intentionally destroyed after liftoff
Retailers are rolling back the loose return policies that helped propel online shopping’s upheaval of in-person buying, now beginning to charge for returns