Tucker Financial Weekly Market Review: November 17th, 2023

Weekly Market Report: November 17th, 2023

Markets last week rallied for a third consecutive week on the back of easing overall financial conditions thanks in large part to disinflation, soft landing, and peak Fed narratives. There was a fair amount of economic data, including October CPI, which leaned into the prevailing bad news is good news sentiment of late. Equity
markets were up sharply with U.S. (+2.24%), developed (+3.98%), and emerging (2.63%) all participating. Small cap U.S. stock jumped nearly 5.5% on the week. Bond markets saw the rally in Treasuries continue and the curve flatten, leaving the 10yr UST yield at 4.44%, down from 4.98% one month ago. The counter cyclical USD fell 1.84% while commodity markets were relatively flat thanks to a late week rally in oil which washed out losses from early in the week.

Market Anecdotes

•  A healthy easing of financial conditions since late October has contributed to stock markets rallying nearly 10% and bond yields falling nearly 0.50% – very healthy gains across the majority of financial market assets as we work through a (seasonally) favorable end to the year.
• Numerous economies including the U.S. are reporting slowing growth and disinflation trends. The most recent Atlanta Fed GDPNow model forecast for 4Q U.S. GDP is 2%.
• The soft CPI print washed out market expectations of any remaining FOMC rate hikes which are now pricing cuts of 25bps by June and 50bps by July. However, Bianco Research issued a reminder that the next two months present some difficult YoY base effect bogeys.
• Nineteen Fed speaking engagements last week noted favorable disinflation trends but also made clear it is far too early to declare victory – avoiding any hint of an all-clear signal for markets.
• A Preqin report on private credit highlighted the significant growth of the asset class to roughly $1.6t in AUM and nearly $500b of dry powder across various types of private credit strategies.
• The House and Senate passed a CR, avoiding a government shutdown, covering operations through late January to early February.
• An FT article last week highlighted net purchases by major central banks totaled nearly $20t from 2009 through 2022 with the exit from central bank QE programs a significant source of uncertainty looking out over the next several years.
• A weaker USD, which touched a 2 ½ month low last week, has been fueled by disinflation momentum implying a pull forward of Fed rate cut expectations.
• A report late last week that KSI may extend their voluntary cut and OPEC+ may cut an additional 1M bpd at this week’s meeting sparked a late week rally in crude oil prices.

Economic Release Highlights

• Headline and core CPI in October rose 3.2% and 4.1% with MOM readings 0% and 0.2% respectively, all registering 0.1% under their consensus forecasts.
• October Retail Sales declined 0.1%, slightly better than the expected -0.3% decline. Ex-Vehicles (0.1% vs – 0.1%) and Ex-Vehicles & Gas (0.1% vs 0.2%) were also generally in line with consensus.
• Weekly unemployment claims took the 4-week moving average to 220,250, a fifth consecutive weekly increase. Continuing Claims of 1.865mm are now at their highest in two years.
• October Industrial Production declined 0.63%, the largest monthly decline since December 2022 and below the long-term average reading of 0.26%.
• The NFIB Small Business Optimism Index in October registered 90.7, slightly above consensus 90.5 and within the forecast range.
• Housing Starts (1.372mm) and Permits (1.487mm) rose slightly in October versus the prior month reading.
• NAHB/Wells Fargo Housing Market Index fell a fourth consecutive month to 34.0.