The Week in Review 12/11/23
"Two things define you: Your patience when you have nothing and your attitude when you have everything." – George Bernard Shaw
Good Morning ,
After struggling earlier in the week, a bustling economy and a strong jobs report helped the markets find traction in the latter half of the week to rally back for their sixth straight weekly gain.
The major indices closed the week with modest gains. There was not a lot of conviction from either buyers or sellers due in part to a growing sense that the market is overbought on a short-term basis. For the S&P 500, Friday's close at 4,604 marked an 11.8% rise off its October 27 low (4,117) and set a new 52-week high for the index.
Alphabet was a winning standout from the mega-cap technology space, gaining 2.5% on the week after jumping more than 5.0% during Thursday's session following its Gemini AI model reveal.
That move helped propel the communication services sector to a 1.4% gain this week. The consumer discretionary sector was another top performer, climbing 1.1%. Meanwhile, the energy sector saw the largest decline (-3.3%) as oil prices dropped 3.5% to $71.18/bbl. The materials (-1.7%) and consumer staples (-1.3%) sectors also registered noticeable declines.
Market participants were dealing with some crosscurrents last week. Renewed concerns about global growth emerged after Moody's downgraded China's credit outlook to Negative from Stable, which was tied in part to concerns about structurally weaker growth prospects, and the October JOLTS - Job Openings Report showed the lowest number of job openings (8.733 million) since March 2021.
Other economic data, however, fit with the soft-landing narrative for the economy. That was good news for earnings, but may be bad news for rate-cut expectations. The ISM Non-Manufacturing Index for November rose to 52.7% from 51.8%, the weekly jobless claims numbers remain consistent with a robust labor market, the November Employment Situation report was deemed solid overall, and the preliminary University of Michigan Index of Consumer Sentiment for December was stronger than expected.
The fed funds futures market is no longer pricing in a rate cut in March following this week's data, but it still sees a strong likelihood of a cut in May (78.5% on Friday), according to the CME FedWatch Tool.
Treasuries settled the week with losses, largely in response to the release of the jobs report on Friday. The 2-yr note yield climbed 18 basis points to 4.74% and the 10-yr note yield rose two basis points to 4.25%. This price action put some renewed pressure on the 2s10s spread, which tightened by 16 bps to -49 bps.
In other news, cryptocurrencies made big moves higher this week, leaving Bitcoin at $44,241.
Market Snapshot…
- Oil Prices – Oil prices rallied but notched their seventh straight week of losses amid production and demand worries. West Texas Intermediate crude futures (WTI) rose $1.89, or 2.73% to close at $71.23 a barrel. Brent crude gained $1.79, or 2.42%, to close at $75.84 a barrel.
- Gold– Gold prices retreated under $2,000 as the dollar and treasury yield strengthened. Spot Gold fell 1.3% to $2,002.80 per ounce while U.S. gold futures also settled 1.3% lower to $2,019.1. Silver closed out the week at $23.276.
- U.S. Dollar– The dollar rose on job growth news and the drop in unemployment. The dollar index was up 0.4% and was at 103.99. Euro/US$ exchange rates are now 1.075.
- U.S. Treasury Rates– Treasury yields jumped on Friday after news that the unemployment rate unexpectedly fell. The yield on the 10-year Treasury note was up by 10 basis points to 4.233%.
- Asian shares were higher in overnight trading.
- European markets are trading mixed.
- Domestic markets are trading mixed this morning.
This week will feature several important economic reports, including November’s inflation CPI and PPI reports, Retail Sales, Industrial Production, and Manufacturing Production. However, the highlight of the week will be the Fed’s last FOMC meeting of 2023.
Barring any major surprises from those inflation reports, the Fed will in all likelihood maintain the federal funds rate at its current level. More attention will be spent on the release of its updated economic projections. Updated quarterly, the report provides a fresh view of how FOMC participants view various aspects of the economy, including projections for inflation, economic growth, and interest rates in the short term and long term.
Fed narrative has been holding to “higher for longer,” but this report may shine additional light on how long. According to CME’s FedWatch tool, the market believes rate cuts will begin in either March or May next year, while the Fed has been guiding toward the second half of the year.
Have a wonderful week!!
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