Markets last week skipped right past the FTX collapse and a missile strike in Poland, instead focusing on a more realistic view of future monetary policy reflecting FOMC resolve in fighting inflation with restrictive monetary policy. By week’s end, a full calendar of Fed speaking engagements along with a few upbeat economic reports combined to keep the animal spirits in check – likely the right sentiment until we start to see cracks in employment data and a clear downward trend in inflation. Global equity markets were relatively flat to slightly negative on the week leaving year to date equity markets down approximately 16%. Bond yields climbed inside of five years but fell outside of ten years while oil prices fell sharply (-10%), taking the commodity complex lower for the week. We saw a very rare -2% move in the USD, a strong rally across industrial metals, and a collapse in bond yields.

• Bullish talk points mostly revolve around the cooler than expected October inflation print and a cautious endorsement of a ‘stepped down’ path of rate hikes moving forward but labor market dynamics and trend inflation data will be the ultimate arbiter.
• Twelve Fed speaking engagements reinforced forward policy expectations while making clear there are upside risks to terminal rate expectations and things are always subject to change.
• Weekly jobless claims reports tend to be volatile but given the focus on the tight labor market is certainly on the radar and worth noting the current level of claims (222k) is right around pre-pandemic levels but continuing claims are clearly trending higher.
• Anecdotal inflation data indications last week including import prices (-0.2%) and PPI (0.2% vs 0.5%) added to the peak inflation narrative last week.
• The double-digit equity market rally over the past month (+10%) has garnered most of the headlines but emerging signals from the slope of the yield curve (2y/10y -69 and 3m/10y -52) are less encouraging as recession and policy tightness indicators.
• The S&P 500’s 10% move since October 12th has pushed through the 50dma and is flirting with the 4,000 threshold but is still well short of the 200dma of approximately 4,070. Meanwhile AAII bullish sentiment jumped from 25.1% to 33.5% on the move last week.
• The S&P 500 P/E of 17.84x sits right around average levels during the pandemic but well above recent cycle bottoms (GFC <10x, Tech bust 14x). Meanwhile higher interest rates, macro uncertainty, and margin pressures may put further pressure on valuations.
• Bianco Research published an update to stock/bond correlation data illustrating the importance and key distinctions of an inflationary market mindset versus a deflationary market mindset and that the two-year correlation just turned positive.
• Bespoke noted massive state, local, and federal (IRA) tax subsidies have triggered significant EV capex as evidenced by GM and Ford earnings reports last week noting large scale build outs of the U.S. EV and battery production manufacturing and technology development.
• The U.K. is now expected to raise taxes and reduce government spending by £55b next year to assist the BoE in bringing inflation down and usher in a sharp decline in government borrowing and spending.
• Never lose an opportunity for an “I told you so.”: 17th century Holland tulip fever; 18th century “South Sea Bubble”; early 20th century American banking crisis; late 20th century tech bubble; early 21st century housing market; and, more recently, the 2020s crypto market swinging from $800B to $3T to $800B.

• October Retail Sales handily beat consensus estimates on the headline (1.3% vs 1.0%), Ex-Vehicles (1.3% vs 0.5%), and Ex-Vehicles & Gas (0.9% vs 0.2%).

• October’s LEI declined by 0.8%, adding to the prior month’s 0.5% contraction.

• October Industrial Production came in slightly below expectations on the headline (-0.1% vs 0.2%) and Manufacturing Output (0.1% vs 0.2%) measures.

• October headline and core PPI data registered (8.0% vs 8.3%) and (6.7% vs 7.2%) YoY along with MoM readings of (0.2% vs 0.5%) and (0.0% vs 0.4%).

• November’s Housing Market Index fell five points to 33, missing the consensus forecast of 36.

• October Housing Starts & Permits of 1.425mm and 1.526mm respectively were slightly above consensus estimates as were Existing Home Sales of 4.43mm.