Market Update – November 10th, 2023

Author:  Joe Maas, CIO SPG Advisors LLC

Financial Markets
In a quieter week between last week’s FOMC meeting and next week’s CPI reading, major equity indexes made little movement. As of close on Thursday November 9th, the Nasdaq Composite gained +0.32%, the S&P 500 fell -0.25%, and the Dow Jones Industrial Average fell -0.5% for the week, following the week of November 3rd’s gains.

Market News

Consumer Credit. In September, consumer credit increased by $9 billion from August, representing an increase of +2.2% compared to September of 2022, led by an +2.9% YoY increase in revolving credit (ex: credit cards). Other recent data indicates that the average credit card balance now exceeds $6,000, the highest level since 2013, as reported by TransUnion. Additionally, the Federal Reserve Bank of New York recently released data showing a record total credit card debt of $1.08 trillion in the third quarter.

All of this comes at a time which job markets are still statistically robust and debt levels are not crushing households, however these heightened debt levels could quickly pose a threat to US consumers should a recession occur.

Source: The Federal Reserve

Consumer Sentiment. The Consumer Sentiment Index from the University of Michigan experienced a -5.3% MoM decline in November, falling on a monthly basis for the fourth straight month, but showed a notable +6.5% increase from a year ago. The Index of Current Economic Conditions followed a similar pattern, falling by -6.9% from the previous month but rising by +11.9% from a year ago.

Throughout the survey, consumers expressed concerns about higher interest rates, particularly in relation to their ability to make significant purchases such as homes. Nearly 70% of surveyed individuals indicated that the current conditions for buying a house were poor due to higher rates, even though most of these consumers are not currently in the homebuying market. While these findings highlight an overall improved consumer outlook compared to the previous year, they also underscore more recent apprehensions among consumers.

Where’s the Recession? As of now, data suggests a recession might be delayed or less severe than initially thought. There’s an added layer of uncertainty due to the lagging impact of interest rate hikes and the duration of this lag is unclear. Despite the rate hikes, Q3 GDP surpassed estimates with an annual growth rate of +4.9%, leading to upward revisions in projected real total GDP in 2023 and 2024 in a survey from professional forecasters at the Philadelphia Fed.

Nevertheless, certain indicators paint a more recessionary picture. The yield curve, particularly the 10-year less the 3-month US Treasury spread, reached its lowest point in June this year and has been recovering since, a historical precursor to recessions. Additionally, the one-year change in unemployment has been on the rise since early 2021. While some of this increase can be attributed to post-pandemic normalization, there is a possibility that it serves as a warning sign of an impending recession. Our view is that a recession may still be on the horizon but looks to be further away and possibly less severe when looking at current data.

This week, consumer credit data revealed increased revolving debt, like credit cards, as consumer sentiment has fallen over the past four months but remains higher than a year ago. Q3 earnings season, almost complete, has generally surpassed expectations, contributing to a more positive outlook for corporations.

Despite ongoing concerns about a recession, current data suggests a downturn might be delayed and less severe than initially feared. Looking ahead to November 14th, the October CPI report will be pivotal, with the Cleveland Fed’s Nowcast estimating headline CPI at 3.3% year-over-year, down from September’s headline CPI of 3.7%.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.

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