Economic Update 11-20-2023 

• Economic data for the week included producer and consumer inflation readings decelerating far faster than expected, boosting the mood of financial markets. Manufacturing releases were mixed, as was housing data, while retail sales fell back a bit. 
• Global equities saw gains as consumer price inflation eased, leading to lower interest rates. Bonds gained accordingly as well. Commodities were mixed, with gains in metals offset by a continued drop in crude oil as supplies stayed elevated. 

U.S. stocks fared positively last week, with a sharp recovery in small cap outgaining large cap. This was despite starting the week negatively, as markets took notice of Moody’s ‘downgrade’ of its U.S. debt outlook from ‘stable’ to ‘negative’ as the prospect of another U.S. government shutdown loomed (deadline being Friday). However, the long-awaited consumer price inflation report showed strong improvement, with positive sentiment carrying over to much of the rest of the week. Congress passed a continuing resolution bill to extend government funding at current levels until late January 2024, using a ‘staggered’ approach. This brought some relief as well, although the risk of a government shutdown next year remains high as both sides have found little to agree upon. Perhaps there was also a bit of positive sentiment from the President Biden-President Xi meeting in San Francisco, if only as it perhaps lowered geopolitical surface tensions between the U.S. and China somewhat. 

Every sector ended in the positive, led by materials and consumer discretionary, and financials, all up over 3%, while defensives consumer staples and health care lagged, as did energy due to a continued drop in crude oil prices. News was mixed, however, with firms such as Target surging upon a positive earnings surprise and guidance, as did a few other consumer firms, while Walmart fared negatively after noting falling prices and some caution on the consumer. Real estate saw sharp gains as interest rates continued to pull back with the encouraging inflation report. 

Foreign stocks saw gains as well, with Europe up 5%, outshining the U.K., Japan, and emerging markets. In Europe, high recession odds and rising chances of central banks cutting rates sooner than later (despite ECB arguments to the contrary—toward a longer pause) raised sentiment. This was in addition to positive disinflationary news from both the U.S. and U.K. Chinese data remains mixed, with the government injecting additional stimulus. 

Bonds fared positively, due to interest rates pulling back as the chances of another Fed rate hike continued to erode, causing the 10-year Treasury to fall back below the 4.5% level. Investment-grade corporates outperformed Treasuries, as spreads tightened, while bank loans lagged with flattish results. Foreign bonds fared positively as the U.S. dollar weakened by over a percent, again tied to interest rate differentials. 

Commodities were mixed with gains in precious and industrial metals offset by a decline in energy. Crude oil fell by over a percent last week to $76/barrel. From a price peak in late September, oil prices are down over -20% into bear market territory, as higher-than-expected supplies from non-OPEC countries (including the U.S.) have offset OPEC+ production cut worries, in addition to renewed concerns over potential 2024 demand. 

Period ending 11/17/2023	1 Week %	YTD %
DJIA	2.06	7.46
S&P 500	2.31	19.29
NASDAQ	2.42	35.98
Russell 2000	5.49	3.46
MSCI-EAFE	4.50	10.95
MSCI-EM	2.99	4.47
Bloomberg U.S. Aggregate	1.37	0.54

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
11/10/2023	5.53	5.04	4.65	4.61	4.73
11/17/2023	5.50	4.88	4.45	4.44	4.59

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.