Market Update – November 3rd, 2023

Author:  Joe Maas, CIO SPG Advisors LLC

Financial Markets
Equity markets rallied this week and US Treasury yields settled, as economists interpreted the Federal Reserve’s comments as a possible end to this rate hiking cycle. As of close on Thursday, November 2nd, the Nasdaq Composite rose +5.15%, the S&P 500 rose +4.87%, and the Dow Jones Industrial Average rose +4.38% for the week, a quick shift from the bearish momentum we saw last week.

Market News

Consumer Confidence. October’s Consumer Confidence survey fell -1.7% from a month ago, marking three consecutive months of decline. This comes as other data demonstrates that consumers are not pulling back in their spending habits, shown in September’s strong retail sales numbers and the third quarter’s strong +4.9% YoY real GDP gain. In this survey and many other data points, we are seeing consumers say one thing and do another, supplying mixed signals to the economy. In any case, one thing is clear – that the economy is faring much better than most estimates had projected for the latter half of 2023, especially in the face of the Fed’s aggressive quantitative tightening.

November FOMC Meeting. Wednesday afternoon, the Federal Reserve wrapped up its November meeting, where Fed Chair Jerome Powell announced no rate hike for this FOMC session, as expected. Verbally, Powell left the door open for future rate hikes, yet markets digested his comments as a likely unofficial end to this tightening cycle, ultimately leading equities’ rally this week. Looking ahead to December’s meeting, markets are estimating a 5% chance (as of November 3rd) of another rate hike, however just one month ago, this probability was 40%, indicating that markets are starting to think this may be the end of rate hikes for the foreseeable future.

Source: CME Group

October Employment Situation. The October job report showed a slimmer than expected +150,000 gain in non-farm payroll, as the unemployment rate ticked up to 3.9%, the highest level since early 2022. The sectors with the greatest job gains were health care, government, and social assistance, while jobs in the manufacturing sector fell due to strike activity. Alternatively, average hourly earnings rose +0.2% from a month ago, less than expectations of a +0.3% gain. Overall, the labor market appears to be slowing down in a healthy manner, according to October’s data, indicating that the Fed’s quantitative tightening work may be close to completion.

Source: BLS

ISM Manufacturing. October’s ISM Manufacturing Purchasing Manager’s Index saw another month of decline, dropping -4.7% compared to September. Among the various industries represented in the index, only the Food, Beverage & Tobacco Products sector showed growth during October, showing consumers’ shift towards necessary goods over discretionary goods. On top of this, the New Orders Index saw a decrease of -7.5% in the same period, suggesting a weakening in demand. These data points continue to demonstrate that the Fed’s monetary policy is affecting various parts of the economy at varying speeds.

Source: ISM

ISM Services. In October, the ISM Services Purchasing Manager’s Index (PMI) saw a notable decline, dropping by -3.4% to 51.8% from a month ago. Five sectors experienced this monthly decline, namely Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Mining; Wholesale Trade; and Professional, Scientific & Technical Services, while twelve of the other industries that the ISM classifies saw growth. Overall, though, the decline in the services and manufacturing sectors reflects a broader trend where both the ISM Services and Manufacturing indices are gradually moving towards slower levels, another sign that the Federal Reserve’s QT efforts may soon be finished.

Source: ISM

Summary
In the week ending on November 3rd, equity markets rallied on signals from the Federal Reserve that the rate-hiking cycle might be at its end. Consumer confidence declined for the third straight month, despite other economic metrics showing a consumer that is still spending heavily. The October employment report showed a smaller-than-expected increase in nonfarm payrolls and a slight uptick in the unemployment rate to 3.9%, while both the ISM Manufacturing and Services indices declined, hinting at a slowing economy and the potential completion of the Fed’s quantitative tightening efforts soon.

The Fed also held its November meeting this week, announcing no rate hike as expected, giving markets the right to rally from October lows. Markets found optimism in a soft-landing scenario this week, with economic data showing a slowdown, while maintaining a steady level of employment – a possible goldilocks outcome that the Fed has been hoping for.

We appreciate your continued trust.

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.