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Welcome to a very thankful (and very late) edition of The Broadcast!
I hope you all had a great Thanksgiving! In addition to celebrating my favorite holiday, the month of November provided lots more to be thankful for as the stock market (buoyed by solid earnings and economic data) posted its best month in over a year.
All major indices were very strongly in positive territory for the month, led by (drumroll please) the tech heavy Nasdaq (again) followed by small U.S. stocks, the S&P 500, international and emerging stocks respectively. Both broad based and short term bonds were in the positive as well!
As you may recall from last month's newsletter, broad based bonds, small U.S. and emerging markets stocks all went negative for the year in October. In yet another example that stocks can move quickly, November's stunning returns moved these indices back into positive territory for the year!
On an economic front, third quarter GDP was revised higher and actually grew at a 5.2% annualized rate! For context, the annual average GDP growth domestically is just over 3%. In nearly any other circumstance, this would be cause for major celebration. In our melancholy environment, nobody seems to be excited at all (though the stock market may disagree with that feeling.)
Unemployment is still in good shape at 3.9% but ticked up in October. Additionally, the number of new jobs added was slightly lower than expected. In nearly any other circumstance, this might be cause for alarm. But because the Fed continues to worry about how a strong job market will actually hurt the economy vis-à-vis inflation, this was actually seen as good news.
Third quarter corporate earnings were solid as well, with 82% of the S&P 500 beating earnings estimates. Historically speaking, this is above the 5 year average of 77%. Additionally, companies in the S&P 500 reported year over year earnings growth of 4.7% which was the year over year increase since Q3 2022.
It's still too early to tell if holiday spending will maintain its early momentum from Black Friday, when consumers spent a record $9.8 billion! That number was 7.5% higher from last year's record of $9.12 billion - an increase of nearly $700 million dollars. Despite the aforementioned melancholy, the American consumer remains a resilient bunch (especially in light of higher borrowing costs caused by our friends at the Fed raising rates.)
Speaking of the Fed, what is the latest in their battle with the dreaded "I word" - inflation? The 3rd quarter's Personal Consumption Expenditure (PCE) number (which tracks core prices) was 2.3% (down from an initial 2.4% reading.) The Fed's target is 2% for a healthy economy. To put this in perspective, the PCE for Q3 2022 was 5%!
With the recent (and trending) economic data being nothing short of spectacular, perhaps November's stock market results are a sign of things to come? Many feel that this trend in inflation data means the Fed is done raising rates for the foreseeable future. There is also the feeling that rates could decrease in 2024. In general, more dovish conditions (lower rates mean lower borrowing costs) are typically helpful to the stock market.
As mentioned in last month's Broadcast, my optimism of the possibility that the Fed is pulling off a Goldilocks landing (inflation being virtually eliminated without a recession and the loss of millions of jobs) is higher than ever! Despite this optimism, I don't believe that the Fed will lower rates anytime soon - so the melancholy I alluded to earlier may linger into next year.
I'll be eagerly awaiting the jobs, inflation and consumer spending data this month and next and will report back in the December edition. As always, stay tuned.
Thank you for taking the time to read my thoughts on the markets and economy. My apologies for sending this out so late after the month’s end, I caught a wicked case of writer’s block - thus the delay. At one point in my (younger) life I actually wanted to be a writer…I am pretty sure my chosen profession suits me better.
In light of the Thanksgiving holiday, I’d be remiss if I didn’t mention how very thankful I am to be working with each of you. It is an honor to be navigating this winding financial roller coaster with you all!
Wishing you all a very happy holiday season!
Until next time…take good care,
Steve