Whispers of The Path Ahead… November 17, 2023

AUTHOR: Jason Roque, CFP®, APMA®, AWMA®
TITLE:   Investment Adviser Rep – CCO
TAGS: S&P 500, NASDAQ, Moody’s, CPI, Retail

It was a good week for growth. Whispers of recession seem to be fading, but what are the potential paths ahead?

Monday                      S&P 500 0.08% | NASDAQ 0.22%

Late on Friday Moody’s downgraded their outlook on US debt to negative. The downgrade was as a result of the elevated rate environment; it makes the US debt level less manageable. All weekend there were concerns of how this would play out on Mondays trading day. There was actually little change because of the news.

Tuesday                        S&P 500 1.91% | NASDAQ 2.37%

Consumer Price Index (CPI) data showed that inflation slowed in October. Year over year (YoY) data through September showed a 3.7% rate, while through October the YoY reading was 3.2%. The softening inflation data built momentum around the idea that the Federal Reserve Board (FRB) is at their peak rate. As that logic grabbed hold, intermediate treasury rates fell.

Wednesday                 S&P 500 0.16% | NASDAQ 0.07%

Retail sales came in better than expected. To be clear, the expectation was for a reduction of 0.2% and it was only 0.1%. So, not so bad news was actually good news??? Markets were little moved on the day as earnings season is winding down.

Thursday                     S&P 500 0.12% | NASDAQ 0.07%

Retail stocks flattened the rally on fourth quarter forecasts that do not look good. As much as stocks have grown this week it seems to have slowed down. Earnings from big box retailers were good, however their outlooks for the fourth quarter were troubling. Their cautionary tone kept growth at bay on the day.

Friday                          S&P 500 0.13% | NASDAQ 0.08%

Housing starts and building permits are projected to increase, even with tighter rates and lower builder sentiment. Equity markets were little changed heading into the weekend, but yields did continue to come down. This is the continued pricing of the Federal Reserve being at the top of their hiking cycle.

Conclusion                 S&P 500 2.24% | NASDAQ 2.37%

Last week we discussed the risk of rates coming down too much. This provides financial accommodation to the economy and causes more spending. The purpose behind FRB hikes was to slow exactly that. You curb spending, you bring inflation back in check. Rates have continued to fall which means that mortgage rates and auto loan rates will quickly follow. These shifts could lead to the FRB becoming hawkish once again because of too much financial accommodation. Interestingly, investors not only think we are at peak rate, but they anticipate a rate cut as soon as May. For that to be the case the economy will have to slow dramatically between now and May. Alternatively, the economy could hold the 2% GDP level and the FRB becomes more hawkish in tone without raising rates. This should foster expectations of a rate cut getting pushed out further and intermediate rates floating back to their highs.

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