Economic Update 10-30-2023 

• Economic data for the week included U.S. GDP growth for Q3 coming in over double that of the prior quarter. Durable goods orders also came better than expectations. In housing, new home and pending home sales both exceeded estimates. 
• Equities fell back as several growth metrics led investors to assume continued higher interest rate policy. Bonds fared positively as yields actually fell back. Commodities were mixed with a small decline in crude oil offset by a spike in natural gas. 

U.S. stocks fell most of last week, ending in the negative, with mixed corporate earnings reports and continued worries about potentially higher interest rates. The robust GDP report also poured cold water on sentiment, as this raises the chances of the Fed either raising rates further or pausing for longer, and certainly reduces the odds of rate cuts any time soon. It’s safe to say that the Fed funds situation continues to outweigh any other market factors. Despite the long-awaited election of a Speaker of the House, odds of a government shutdown after Nov. 17 remain high, as there is little common ground between the parties. However, another temporary extension remains in the cards as well, buying a few more months. 

For followers of charts, the S&P’s 200-day moving average gave way on the downside, with the overall decline since late July coming in at close to the -10% correction for the most part. Additionally, the approximate 4150 level marks as a -50% retracement point from the Oct. 2022 to Jul. 2023 recovery rally, which is also technically significant. By sector, utilities saw the only gains last week, with declines most severe in energy and communications services, followed by health care. Real estate also fell back a percent, despite interest rates falling back.  

Roughly a third of the S&P 500 reported last week, bringing the cumulative total to about half of the index completed so far, with blended earnings growth improving from a negative -0.3% year-over-year last week to a positive 2.7% (per FactSet). Revenue growth similarly improved from last week’s 1.6% to now 2.1%. Earnings of the ‘Magnificent 7’ mega-cap tech firms were in special focus, with expectations for that select group of firms continuing to be demanding, especially in light of higher costs. Microsoft gained after beating expectations and the announcement of more artificial intelligence tools, while Alphabet, Amazon and Meta each fell back initially with slower-than-expected cloud growth and/or management caution about the economic environment ahead despite decent overall company performance. The bulk of earnings season wraps up after this coming week. 

Foreign stocks declined last week, but fared better than U.S. markets, with similar global concerns of economic growth, interest rates, as well as the uncertainty surrounding the Middle East conflict. The ECB decided to keep rates unchanged at 4.0%, for the first time in ten meetings, noting that this was likely the end of hikes, but also that such a high level might be required to return inflation back down to 2%. In addition to weaker PMI results, this likely also contributed to sentiment somewhat, relative to U.S. equities. In EM, gains in China and Mexico of several percent each offset declines in India and South Korea and Taiwan. In China, stronger industrial profits improved sentiment. 

Bonds reversed their negative trend by having a positive week with interest rates declining. Investment-grade corporate outperformed government only slightly, while floating rate loans fell back. A stronger dollar caused developed market foreign bonds to end flat, while emerging market debt ended strongly positive.  

Commodities were mixed, with gains in industrial metals offset by declines in energy and agriculture. Crude oil prices fell back -3% last week to $86/barrel, while natural gas prices spiked by 7% with winter weather approaching in large sections of the country. Petroleum prices remain in sharp focus, being seen as the largest global carryover of the Israel-Gaza conflict, and any potential escalation. 

Period ending 10/27/2023	1 Week %	YTD %
DJIA	-2.14	-0.51
S&P 500	-2.52	8.66
NASDAQ	-2.62	21.59
Russell 2000	-2.60	-5.91
MSCI-EAFE	-0.76	2.59
MSCI-EM	-0.61	-1.65
Bloomberg U.S. Aggregate	0.68	-2.48

 

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2022	4.42	4.41	3.99	3.88	3.97
10/20/2023	5.58	5.07	4.86	4.93	5.09
10/27/2023	5.59	4.99	4.76	4.84	5.03

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.