Economic Update 12-04-2023
- Economic data for the week included Q3 GDP being revised slightly higher, while PCE inflation continued to decelerate. Manufacturing data remained contractionary on net, and new and pending home sales fell back.
- Stocks gained globally as falling inflation and central banker comments led to hopes for lower interest rates next year. Bonds fared especially well, due to a drop in long-term rates leading to a strong duration effect. Commodities were mixed to down, with higher gold prices offset by weaker crude oil, despite OPEC+ production cuts.
U.S. stocks fared positively to end November. In fact, the month’s S&P total return of 9.1% was the best single month in over a year. Positive sentiment was related to slower PCE inflation reading during the week, showing further deceleration in prices. More so, this was tied to some optimistic comments from Fed board member Waller, who has been seen as hawkish up until now, having updated his view of inflation ultimately getting back to 2% with current policy, and better chances of even ‘lowering the policy rate’ over the next 3-5 months. Markets jumped on the news, as this provided some hope for even more substantial rate cuts next year. However, before this exuberance got too out of hand, Chair Powell attempted to quash these dovish expectations, hinting at the still-possible chance of rate hikes ‘if’ data demands it. Seemingly now that probabilities are high that we’re at ‘peak’ Fed funds rate, the question of year-end has turned to rate cuts.