Weekly Market Report: December 8th, 2023
The S&P 500 and NASDAQ delivered a sixth consecutive weekly gain, both marking fresh highs on the year. Economic reports showing a still resilient U.S. labor market, some AI hype, and a healthy uptick in consumer sentiment were key drivers last week where soft landing and peak Fed narratives remained firmly in place. Last week saw bond yields break a streak of six consecutive weekly declines with the curve flattening and yields rising 10-15bps in the belly. Oil prices (and commodities) maintained their downward momentum, closing the week just above $71/bbl while the USD strengthened 0.71%.
Market Anecdotes
- As we approach year-end, a quick look at stock and bond market returns should make investors feel relatively jolly as we head into the end of the year, particularly as it compares to last year.
- An article by Robert Armstrong in the FT connects the November risk asset rally to soft landing/peak Fed narratives but also very much to the significant increase in liquidity from the NY Fed RRP which Bianco Research estimates accounts for more added liquidity than QT has withdrawn.
- A look at Chinese stocks versus U.S. or global stocks reminds investors of the many issues facing the country including real estate excess, timid stimulus, elevated debt levels, and overall deflation which does seem to be translating to a balance sheet recession dynamic in China.
- The healthy jobs report last week pulled bond yields higher and expectations of Fed rate cuts in 2024 lower but details show the number of job losers actually rose but was offset by an increase in people re-entering the job market (participation rate).
- BCA noted an interesting disconnect between copper prices and cyclical vs defensive equity dynamics where copper has declined on the year, but cyclicals have outperformed defensives.
- Prevailing ‘soft landing’ optimism among economists and strategists seems to be shared by sell side analysts, currently forecasting 2024 earnings and revenue growth of 10.4% and 4.75%, respectively, with four consecutive quarters of positive earnings growth.
Economic Release Highlights
- The November Jobs Report showed 199,000 new jobs, slightly better than the 180,000 consensus estimate. The unemployment rate fell from 3.9% to 3.7%. The participation rate increased to 62.8% and average hourly earnings of 0.4% MOM and 4% YOY were in line with forecasts.
- The November ISM Services Index registered 52.7, slightly higher than consensus forecast of 52.4 and an improvement relative to October’s 51.8.
- Non-U.S. PMIs (C, S) released last week included Global (50.4, 50.6), China (51.6, 51.5), India (57.4, 56.9), Eurozone (47.6, 48.7), and the UK (50.7, 50.9).
- October’s JOLT Survey reported 8.733M job openings, well under the consensus 9.4M expected.
- December’s U of M Consumer Sentiment Index of 69.4 was well above forecast of 61.9 and prior month of 61.3. The one-year inflation expectation decreased from 4.5% to 3.1%.
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