Weekly Market Report: December 15th, 2023

A dovish FOMC pivot, moderating inflation, and a generally in line slate of economic reports pushed equity markets to another strong week of gains. The yield curve flattened and yields again fell sharply, leaving the 10yr yield below the 4% level. The USD weakened notably (-1.4%) as other central bank narratives weighed in a bit more hawkish than the Fed. Commodities were up 1% on the back of a rally in industrial metals while WTI oil was relatively flat, closing at $71.43, down 11.9% on the year and down 24.3% since its 9/27/23 peak for the year.

Market Anecdotes

  • Seven consecutive up weeks on the S&P 500, something we’ve only seen 10 other times since 1990, led Goldman Sachs to note the market has reached its most overbought level (RSI >70) in over a decade. Forty- six percent of stocks are trading with a 14-day RSI>70, the most in 30 years.
  • Last week’s FOMC meeting left rates unchanged as expected at 5.25%-5.50% with markets focused on the SEP, dot plot, and Powell’s remarks. While the statement continued to indicate the Fed is prepared to hike further, Powell’s remarks made clear they are at or near the peak.
  • U.S. monetary policy focus has been changed to the timing of rate cuts. A look back at the historical span between the last rate hike and initial rate cut shows a range of 4 to 15 months, with an average of 8.
  • While markets are certainly in celebration mode, the prospect of sticky inflation or second wave inflation remains a tangible risk as evidenced by near term moving averages of both the Cleveland and Atlanta Fed. inflation models.
  • After 11 consecutive hikes and stepping aside at their October meeting, the ECB again kept rates on hold at 4.5%. 14 successive hikes and two pauses saw the BoE again leave rates at 5.25% as did the SNB (1.75%).
  • The sharp decline in bond yields comes with several constructive implications including lower cost of debt across both the public and private sector, a tailwind for equity market valuations, and increased home buying activity which can spur factory orders and the manufacturing sector.
  • The unemployment rate fell in November from 3.9% to 3.7% warranting a check in on Sahm rule and Joshi rule recession indicators with the latter rising from 0.153 to 0.169, closing in on the key 0.20 threshold.

Economic Release Highlights

  • Headline and core CPI rose in November 3.1% and 4.0% with MOM readings of 0.1% and 0.3% respectively, all relatively in line with consensus forecasts.
  • U.S. PMI (C, M, S) saw manufacturing come up short, but services exceeded their respective forecasts registering (51.0, 48.2, 51.3) in the December flash.
  • Eurozone and U.K. PMIs (C, M, S) for the December flash registered (47.0, 44.2, 48.1) and (51.7, 46.4, 52.7) respectively.
  • November Retail Sales grew 0.3%, well ahead of the spot consensus -0.1%. Both ex-vehicles (0.2% vs -0.1%) and ex-vehicles & gas (0.6% vs 0.1%) beat forecasts as well.
  • NFIB Small Business Optimism Index registered 90.6, generally in line with forecasts but still below the long- term historical average of 98.
  • Industrial Production grew 0.2% slightly below 0.3% forecasts and toward the bottom of the 0.1%-0.7% forecast range.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
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