November 2023 Monthly Commentary
Greetings Team,
Unless you’ve been living under a rock, it’s impossible to ignore the remarkable surge in stocks that has taken place over the past month. This surge extends beyond the largest and most influential technology companies in the market, aka the “Magnificent 7.” The DOW, S&P, and Nasdaq have all experienced significant increases, with gains of 8%, 9% and 10% respectively in November. These historically strong returns have captured the attention of even the most casual observers.
What exactly sparked this major market rally? The Consumer Price Index (CPI) was flat in October from the previous month, signaling that inflation has finally been culled and the Federal Reserve will stop raising interest rates. In fact, interest rate futures now suggest a 52% chance of rate cuts before the May 2024 policy meeting, a substantial shift in sentiment from just a month ago. This is good news because bull markets are typically preceded by declining or expectations of declining interest rates. The rational behind this phenomenon lies in the fact that many companies heavily rely on borrowing to finance their operations. When borrowing costs decrease, companies pay less interest, resulting in increased profits and higher share prices.
Is it time to take a Victory Lap? Not so quick. As General George S. Patton once said. “Victory is not a momentary event, but a culmination of enduring effort and unwavering resolve. To declare triumph prematurely is to invite complacency and undermine the very foundation of success.” In other words, while the latest CPI reading may indicate that inflation is waning, it is only one economic indicator used to assess the economic outlook. Another economic indicator includes a weakening job market, as initial weekly jobless claims rose by 7,000 to 218,000. Although this may seem counterintuitive, in this environment higher jobless claims are actually viewed favorably by the Federal Reserve as it further solidifies their belief that inflation is under control.
On balance, the economy still faces several headwinds that could potentially derail this rally. Particularly from a geopolitical standpoint, the world is still grappling with two ongoing conflicts in both Eastern Europe and the Middle East. While these conflicts have not spread to other regions, severe calamity and oil price shocks would likely occur if they did.
From The Schmitt Group perspective, we remain steadfast in our commitment to closely monitor the latest economic indicators and market trends. In simpler terms, despite our risk-averse approach, we are prepared to seize every opportunity that this market brings to bear. We have been eagerly awaiting this moment, and now it is finally here.
Have a happy & healthy holiday season & look forward to a prosperous New Year – bringing health & wealth to us all!
Onward & upward always!
Steven and Daniel
