Last Week on Wall Street

Last Week on WallStreet - December 9th, 2023

S&P 500: 0.21% DOW: 0.01% NASDAQ: 0.69% 10-YR Yield: 4.24%

What Happened?

The S&P 500 has been on a notable winning streak, marking its sixth consecutive week of gains and reaching a new high for the year. This end-of-year rally is being driven by optimism surrounding the possibility of a "soft-landing" scenario. In this scenario, inflation would decrease as a result of higher interest rates, yet the economy would avoid a recession, a delicate balance the Federal Reserve is striving to achieve. Recent data releases this week have largely supported this hopeful outlook. This week's data indicated a gradual softening in the employment sector, despite a slight uptick in the headline numbers. Additionally, wage growth remains moderate, suggesting that the inflationary pressures it has contributed to in recent years may become less significant moving forward. However, indicators of economic activity continue to point towards sluggish performance, raising concerns about potential challenges in the upcoming months, as many experts anticipate. The ongoing debate centers around whether the economy will smoothly transition or if it will encounter a recessionary setback.

Beneath the surface, there was bifurcated performance across sectors this week, with 5 sectors emerging as winners and 6 recording losses. The traditional high flyers returned this week as Discretionary (+1.2%), Communications (+0.8%), and Technology (+0.6%) drove higher. The perennial laggard over the last few months, Energy (-3.3%) continued its losing steak followed by Materials (-1.7%).


US Payrolls Rose 199,000 in November, Unemployment Rate Falls to 3.7%

  • Nonfarm payrolls rose by a seasonally adjusted 199,000 for the month, better than the 190,000 Dow Jones estimate
  • The unemployment rate declined to 3.7% vs the forecast of 3.9%
  • The labor force participation rate edged higher to 62.8%
  • Average hourly earnings, a key inflation indicator, increased by 0.4% for the month and 4% from a year ago

The key takeaway - After a subdued month in October for job gains, November witnessed a rebound in the labor market that exceeded expectations. Investors are closely watching these reports for insights into the trajectory of the economy, inflation trends, and the Federal Reserve's forthcoming policy decisions. The milder job growth in October had led markets to rally, as these softer figures suggested a potentially less aggressive stance on interest rate hikes. Interestingly, despite the renewed increase in job gains, markets responded positively to the November report. This optimism was driven by the details within the report, indicating that the labor market is cooling down at a manageable pace and wage growth is moderating, which helps alleviate inflationary pressures. This aligns well with the 'soft-landing' camp, who interpret these developments as signs of an economy that will bend but not break, while sustaining the disinflationary trend.


Jeffry Bartash - MarketWatch

US Service Sector Picks Up in November - ISM

  • ISM Services rebounded to 52.7 in November from a five month low of 51.8 last month, expectations called for a rise to 52.4
  • Last week, we got a read on manufacturing, where ISM's gauge showed activity shrank for the 13th straight month holding at 46.7.
  • Numbers over 50 indicate expansion while under 50 indicate contraction

The key takeaway - The economic narrative that has unfolded over the past year continues its trajectory, characterized by a dichotomy between manufacturing and services. The manufacturing sector has experienced a slowdown, impacted greatly by rising borrowing costs. However, data suggests a stabilizing trend in manufacturing, albeit at a lower level. In contrast, the service sector has been a beacon of strength. However, the sector is not without its challenges. It's currently hovering near post-pandemic lows, signaling that the surge in consumer demand for services might be waning. Given the stickiness of inflation in the service sector, the pullback in spending on services and back to goods could be welcomed by the Fed in their battle to bring inflation to its 2% target.


Consumer Sentiment Jumps in Early December for the First Increase in Five Months

  • The University of Michigan’s gauge of consumer sentiment rose to a preliminary December reading of 69.4 from a six-month low of 61.3 in the prior month
    • The highest level since August
  • Americans think inflation will average a 3.1% rate over the next year, down from 4.5%
  • A barometer of consumer expectations of future economic conditions rose to 66.4 from 56.8

The key takeaway - According to this report from the University of Michigan, consumer sentiment, which had been declining over the past four months, experienced a notable turnaround in early December. This shift wasn't just in consumers' perceptions of the economy and their personal circumstances, but also in their expectations of decreasing inflation. Consumer expectations can significantly influence the actual trajectory of inflation in the economy. Several factors are contributing to this renewed confidence among Americans. These include a strong job market, a recovering stock market, and decreasing gas prices. Additionally, the usual uplift in spirits associated with the holiday season cannot be overlooked. When consumers feel positive about the future, they are more likely to spend, thereby supporting the economy. However, excessive consumer spending could maintain economic momentum, potentially sustaining higher levels of inflation.


From Around the Watercooler

The Biden administration proposed a framework to seize the patents for pricey medicines whose development was partially funded with taxpayer dollars

Masters champ Jon Rahm is ditching the PGA Tour for the rival Saudi-backed league, LIV, because of a deal reportedly worth more than $300 million

Journalists and staff at the Washington Post staged a one-day strike to protest layoffs amid stalled contract negotiations

Venezuelans voted Sunday to claim sovereignty over part of Guyana, intensifying a territorial conflict with their oil-rich neighbor