Last Week on Wall Street

Last Week on WallStreet - December 23rd, 2023

S&P 500: 0.75% DOW: 0.22% NASDAQ: 1.21% 10-YR Yield: 3.90%

What Happened?

The holiday season brings cheer as we relax with loved ones, and investors have much to be thankful for as we wind down the year. The S&P 500 has notched its eighth consecutive week of gains as we approach Christmas, buoyed by encouraging signs of easing inflation and robust consumer spending. These developments have fueled hopes that the upcoming year might witness rate cuts by the Federal Reserve and a smooth economic deceleration to a "soft landing." With the year's end in sight, its possible that the S&P 500 might reach a new all-time high, capping off a year of significant recovery. As we transition into the new year, investors are keenly observing the trajectory of the economy, inflation, and the Federal Reserve's monetary policies. Current sentiment suggests optimism that inflation is becoming more manageable, anticipating the Fed might reduce its tight monetary stance.

The economic outlook, however, remains more uncertain. While a general slowdown relative to 2023 is widely expected, opinions vary on whether this will tip into a recession or if the economy will manage to maintain stability. The coming months will be crucial in revealing the direction of these economic indicators, as investors and experts alike watch for signs of what 2024 will hold.


Prices Fell In November for the First Time Since 2020. Inflation is Approaching Fed Target

  • The Fed’s preferred inflation measure, the personal-consumption expenditures price index, fell 0.1% in November from the previous month
  • Prices were up 2.6% from a year ago
  • Core PCE rose just 0.1% in November and was up 3.2% from a year ago
  • On a six-month basis, core PCE increased 1.9%

The key takeaway - Following the welcomed CPI report a week ago, this week's PCE figures instigate growing optimism as inflation seems to be trending downwards sustainably, suggesting the Federal Reserve is effectively landing the final blows against it. The decrease in the month-over-month headline figure is a impressive feat after two years of dramatic elevation in prices. While this suggests we may be nearing the end of this inflationary cycle, challenges persist. The core inflation rate remains above 3%, and while not alarming currently, the Federal Reserve aims to reduce it closer to the 2% target. Moreover, as the Fed contemplates lowering rates to reduce economic restrictions, they must tread carefully to avoid reigniting inflationary pressures. However, a projected slowdown in rent increases is expected to apply further disinflationary pressure, potentially alleviating some of these inflationary concerns.


Economy Still Appears Headed for Recession, US Leading Index Signals

  • The leading economic index declined 0.5% in November, falling for the 20th month in a row
  • Economists polled by the Wall Street Journal had forecast a 0.5% drop in the leading index
  • The gauge of 10 indicators designed to show whether the economy is getting better or worse
  • Nine of the 10 indicators in the survey were flat or negative in November

The key takeaway -

Despite the now multi-year decline in traditional economic indicators, U.S. business activity continues to surprise economists and market participants by avoiding a recession. This may be due to the pandemic's unprecedented global shock, potentially weakening these indicators' effectiveness for the current economic cycle. Some experts argue that while these indicators are lagging, they still signal an eventual economic slowdown. The intensely strong labor market and persistent consumer spending have been significant factors propelling the economy forward and staving off the expected slowdown. This robust economic activity has been fueled by high employment rates and consumer confidence, driving demand. However, looking forward, experts are cautious. They predict a potential economic deceleration due to emerging consumer headwinds, including softer consumer balance sheets and escalating interest rates. These factors might converge with other economic indicators to initiate the long-anticipated recession. Despite these looming challenges, there remains hope that the Federal Reserve could manage economic pressures and might successfully achieve a 'soft landing,' delicately balancing between controlling inflation and maintaining growth.


Jacob Passy - MarketWatch

Home Sales Ticked Up in November After 5 Months of Declines

  • Existing-home sales increased 0.8% in November from the prior month to a seasonally adjusted annual rate of 3.82 million
  • November sales fell 7.3% from a year earlier
  • The national median existing-home price rose 4% in November from a year earlier to $387,600
  • The share of first-time buyers in the market was 31% in November, up from 28% a year earlier

The key takeaway - Home affordability continues to deteriorate, primarily due to the Federal Reserve's aggressive stance on inflation, which pushed market rates to their highest in decades. As a result, mortgage rates surged, increasing the financial requirements for potential homebuyers. However, there's a possibility that the worst may be over. With the Federal Reserve signaling potential rate cuts and market responses driving down rates, stronger demand may return. This easing of rates has started to positively impact home sales, but a full return to pre-pandemic levels is unlikely soon. The economic forecast suggests a general downturn, and interest rates are not expected to drop to the historically low levels experienced in the 2010s. Despite these challenges, new home builders are seizing opportunities within the housing supply and demand imbalance, constructing new homes to meet some of the market needs.


From Around the Watercooler

Bird, the electric scooter company, which was once the fastest startup to reach a $1 billion valuation, sought Chapter 11 bankruptcy protection

SiriusXM was hit with a lawsuit by the state of New York for making it too hard for customers to cancel subscriptions

As a result of ongoing Houthi attacks in the Red Sea, ships are opting to travel all the way around the southern cape of Africa rather than risk using the Suez Canal

US Steel, once the world’s largest company and a symbol of US manufacturing might, has agreed to be bought by Japan’s Nippon Steel