Market Update – November 17th, 2023

Author:  Joe Maas, CIO SPG Advisors LLC

Financial Markets
Stocks rallied this week as inflationary data came in lighter than expected for October. As of close on Thursday, November 16th, the Nasdaq Composite gained +2.29%, the S&P 500 gained +2.11%, and the Dow Jones Industrial Average gained +1.93% as investors anticipate less hawkishness from the Fed.

Market News

October’s Cool CPI. Tuesday morning’s October CPI data revealed that both Headline and Core CPI came in below expectations, with annual CPI at +3.2% and Core CPI at +4.0%. October’s monthly CPI remained unchanged, while Core CPI increased by +0.2% from the previous month, both also below estimates. Following this, the S&P 500 was up nearly +2% on Tuesday, driven by investor anticipation that the Federal Reserve’s official rate hiking pause may soon become a reality.

Source: BLS

In October, cooler inflation was driven by a notable -2.5% monthly decrease in energy prices and a -0.8% monthly decline in used vehicle prices, which experienced its fifth consecutive month of declines. On the inflationary front, transportation services saw a noteworthy +0.8% monthly increase in October.

On an annual basis, shelter, the largest factor in CPI, rose by +6.7%, while energy commodities were down by -6.2% compared to October 2022. Other categories like food at home (groceries) rose by +2.1% from a year ago, a more moderate inflation rate consistent with the Fed’s 2% target. Overall, we are seeing progress in inflation towards the 2% goal but will continue to monitor data closely as it rolls out.

Source: BLS

October Producer Prices Fell from September. Producer inflation moderated in October compared to September, with an annual PPI inflation rate of +1.3% and Core PPI rate of +2.9%. Compared to September, this marked a decline of –0.5% in headline PPI and just a +0.1% increase in Core PPI.

Similar to CPI, falling energy prices led Headline PPI lower, with energy down –6.5% in the month. Food prices also fell –0.2% in the month, alongside a –0.7% drop in the cost of trade as well. We are optimistic that the trend of lighter producer inflation will continue to allow producers to pass on these more moderate price increases to consumers in the upcoming months’ CPI data.

Source: BLS

Retail Sales. Following October’s light inflationary readings, Retail Sales data similarly came in lighter than expected for last month. October Retail Sales came in lighter than estimates at a monthly decline of –0.1%, led by a significant drop in auto sales and a slimmer but still substantial drop in general merchandise sales. On an annual basis, Retail Sales were only up +1.6%.

The observed decline in Retail Sales may be a proactive measure as consumers save up for heightened holiday spending. Alternatively, it could signify an initial indication of weakened discretionary spending, especially if the Retail Sales figures for November and December turn out to be lackluster as well. Either way, we will continue to watch the data closely for material shifts.

Continuing Claims. As the unemployment rate in October ticked up to 3.9%, continuing claims have also been on the rise, meaning workers are staying on unemployment for extended periods of time. Although unemployment remains relatively low according to historical averages, continuing claims are almost 30% higher than a year ago, an initial indicator of an economic downturn and higher unemployment to possibly come. At this time, the labor market continues to appear tight, but cracks are starting to show.

Summary
Equity markets rallied this week on lighter than expected inflation in October’s CPI and PPI, while Retail Sales for the same month fell short of expectations. The labor market is beginning to exhibit signs of strain, with continuing claims showing a notable increase from a year ago.

While various indicators like inflation, employment, consumer spending, and consumer confidence, point to an economic slowdown, the key question is whether this trend will persist as solely a slowdown or escalate into a recession, compelling investors to be patient for more data to roll out.

We appreciate your continued trust.

The next Weekly Market Update will be in two weeks due to the Thanksgiving holiday.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

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.