The Week in Review 10/23/2023

“When things go wrong, don't go with them.” – Elvis Presley

Good Morning,

Investors were mostly sellers last week, as we dealt with surging interest rates and anxiety related to the Israel-Hamas War. Uncertainty surrounding a potential ground invasion by Israeli forces into Gaza weighed on sentiment ahead of the weekend due to the understanding that participants cannot react in real-time while the markets are closed for trading.

Treasuries remained volatile which resulted in the 10-yr note yield crossing 5.00% at its high last week for the first time since 2007. Ultimately, the 10-yr yield jumped another 29 basis points this week to 4.92%. The 2-yr note yield rose four basis points this week to 5.09%.

Volatility in the Treasury market was partially a reaction to Fed Chair Powell's speech at the Economic Club of New York on Thursday. His prepared remarks supported the popular view of late that the jump in long-term rates has helped to tighten financial conditions, paving the way for the Fed to proceed cautiously. In answering a question, though, Mr. Powell acknowledged that the economic evidence is not indicating that the Fed is too tight yet with its policy.

Another sticking point for the stock market was the ongoing dysfunction in the House of Representatives. Following three failed rounds of voting this week, Rep. Jim Jordan (R-OH) lost the status of Speaker of the House nominee after a GOP conference vote went against him by a "wide margin," according to Punchbowl News.

The House will now head home for the weekend without another vote, according to CNBC.

Data this week painted a mixed picture of the economy. Retail sales were stronger than expected and weekly initial jobless claims hit their lowest level since January.

Meanwhile, the existing home sales report was the weakest since October 2010 and the Leading Indicators index was negative for the 18th consecutive month.

Earnings news was also somewhat mixed. Netflix and Tesla were among the standouts, along with Dow components Travelers, Procter & Gamble, and American Express.

The S&P 500 closed below its 200-day moving average on Friday, adding to investor’s anxiety.

Only two of the S&P 500 sectors that logged a gain this week -- consumer staples (+0.7%) and energy (+0.7%) -- while the real estate (-4.6%) and consumer discretionary (-4.4%) sectors saw the biggest declines.

Market Snapshot…

• Oil Prices - Oil prices settled lower last Friday. West Texas Intermediate crude futures (WTI) fell 62 cents, or 0.7% to close at $88.08 a barrel. Brent crude fell 22 cents, or 0.2% to close at $92.16 a barrel.
• Gold - Gold prices extended gains on fears of a further escalation in the Middle East conflict. Spot Gold was up nearly 0.4% at $1,980.79 per ounce, while U.S. gold futures added 0.6% to $1,992.60. Silver closed at $23.504.
• U.S. Dollar - The dollar index ticked up 0.03% to 106.22 after the 10-year Treasury yield briefly hit 5% late on Thursday. Euro/US$ exchange rate is now 1.062.
• U.S. Treasury Rates - Treasury yields dipped lower Friday after rising to multiyear highs a day earlier. The yield on the 10-year Treasury note fell to 4.907%, down around 8 basis points.
• Asian shares were down in overnight trading
• European markets are trading lower.
• Domestic markets are indicated to open in the red this morning.

Earnings are hanging tough… to date, 17% of the S&P 500 has reported their earnings results. Of those companies, the aggregate earnings growth rate is -0.4% for the quarter. We are still very early in the season with many companies still to report.

This week will feature September’s PCE report and the third quarter’s preliminary GDP report. Both releases will be key components for the Fed’s meeting next week. PCE is the Fed’s preferred inflation measure and GDP is a measure of overall economic health.

The Fed will be looking for declining inflation and moderating GDP to affirm rates should remain steady.

Have a wonderful week!

The opinions expressed herein are those of Michael Hilger and not necessarily those of Raymond James & Associates, Inc., and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
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