Quick Take: Stocks and bonds had one of its best Novembers in decades as investors speculated the Fed would end its interest rate hiking campaign.^[1],[2]

 

“For every action, there is an equal and opposite reaction.” Newton’s timeless principle resonates beyond physics, often showing up in market action. In November, stock markets enjoyed a strong rebound after a multi-month losing streak.^[3]

Source: https://www.wsj.com/finance/stocks/global-stocks-markets-dow-news-11-30-2023-d5f0efb6

 

US stock markets posted the best month in almost a year and a half, with the Nasdaq ending up 10.7% and the S&P not far behind, rising 8.9%. ^[4],[5] Stocks began rallying after bond yields peaked in October.^[6] It’s important to note that bond prices generally rise when yields fall and vice versa.

Bond yields eased after the Federal Reserve voted to leave rates unchanged on Nov 1, and Fed chair Jerome Powell hinted that the central bank might be done raising interest rates for now.^[7]

Equities continued to pick up steam midmonth after data showed consumer prices fell by more than Wall Street expected.^[8]  The combination of slower consumer spending and easing inflation boosted expectations that the Fed is done raising rates.^[9]

 

Beaten Down Sectors Rally

Source: https://www.wsj.com/finance/stocks/these-are-some-of-the-stocks-leading-the-markets-year-end-rally-0da16b93

 

As investors look for an end to the rate hike cycle, the resurgence in stocks has been fueled by beaten-down sectors and those sensitive to higher borrowing costs, like information technology, real estate, and financials.^[10] A broad based rally might indicate that investors are looking for bargains.

Bargain hunting reflects optimism that the economy pulled off a soft landing this year and should avoid a deep recession in 2024. Another reason to celebrate? Rising corporate profits, which rose by 6.7% in the third quarter compared with an increase of 1.6% in the second quarter.^[11]

Amidst the gains, there are cautionary notes – we see signs of slowing economic momentum, especially in manufacturing.^[12] Jobs and wage growth are slowing, and household disposable income is losing steam.^[13]

Source: https://www.ft.com/content/dfaf27ac-e84f-4e33-9984-19194cf63dd7

 

Even so, stocks were content with the economic news, though liquidity may also have been a factor.^[14] Liquidity seems to be rising again, as measured by the reserves commercial banks hold at the Federal Reserve Bank.^[15] Although liquidity alone does not necessarily push stocks higher, its presence can create a tailwind for stocks.

 

2023 Shutdown Avoided

In the midst of this market optimism, the US government managed to avoid a government shutdown with a stopgap bill just days before funding would have expired.^[16] Uncertainty had been rising after eight GOP lawmakers led the effort to remove Kevin McCarthy from the House speakership in October.^[17] The current House speaker, Mike Johnson, was elected to his post three weeks following McCarthy’s ouster.^[18] With a short timeline left before a looming government shutdown, Johnson needed bipartisan votes to pass a continuing resolution extending funding levels.^[19]

The new legislation funds the government at current spending levels with staggered funding expiration dates. ^[20] Around 20% of the government is financed through January 19, with the rest financed until February 2, which leaves two possible dates for partial government shutdowns. ^[21]

The extreme partisanship triggering these standoffs led Moody’s to lower its outlook for the US credit rating to negative.^[22] A potential credit downgrade could drive borrowing costs higher and make it more expensive for Americans to borrow money.

 

Bonds Welcome Treasury Auction Adjustments

As Congress wrestles with trying to pass spending bills, the US Treasury Department has its own challenges with accommodating growing US deficits.^[23] The gap between federal spending and revenue has widened more than expected as tax revenues dropped and interest costs expanded from higher rates. ^[24] As a result, the Treasury had to increase its sales of longer-term debt at its August quarterly announcement, which helped to fuel a bond rout through the summer and early fall where the 10-year yield touched 5% in October. ^[25]

Treasury auctions are becoming more important as investors worry about the swelling supply of long-term debt. However, this past month the Treasury pleasantly surprised Wall Street by cutting back on expected increases in long-term bonds to favor more short-term debt, which sparked a rally in Treasury bonds. ^[26]

Bonds posted their biggest monthly gain since the mid-1980s, with Bloomberg’s U.S. Aggregate Bond index rising 4.8% from the bond-buying spree. ^[27]

 

What’s Next: Rate Cut Expectations

November sentiment was generally optimistic, and after the month’s $3 trillion surge, the S&P 500 ended just 5% away from all-time highs.^[28] For 2023, the benchmark equity index is up around 19%,^[29] although many other asset classes have struggled this year.

The Federal Reserve meets for its final time of the year Dec 12-13, when they will issue a summary of economic projections and perhaps shed more light on the path of rates .^[30] Markets expect over 100 basis points of cuts next year and are fully pricing in a rate cut by May, with almost a 50% chance of a move in March.^[31] Historically, the end of the Federal Reserve’s tightening cycles have been pivotal moments that delivered double-digit returns for stocks.^[32]

As we usher in the holidays, we reflect on a year that has brought opportunities but also tested the patience of investors. Instead of getting caught reacting to the unpredictability of markets, we’re here to proactively navigate the ups and downs with you, and seek tax efficiency while regularly aligning your investments with your long-term goals. The true strength of a well-crafted investment plan lies in its ability to adapt and thrive across different market conditions.

Thank you for your trust in us and the opportunity to dedicate our team to your financial peace of mind.

During this festive time, we extend our heartfelt wishes to you and your loved ones for a joyful holiday season! May you enjoy gatherings with family and friends – filled with laughter and love – and a splendid new year!

Your friends at JSF

 

The information expressed herein are those of JSF Financial, LLC, it does not necessarily reflect the views of NewEdge Securities, Inc. Neither JSF Financial LLC nor NewEdge Securities, Inc. gives tax or legal advice. All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed constitutes a solicitation or recommendation for the purchase, sale or holding of any security. Investing involves risk, including possible loss of principal. Indexes are unmanaged and cannot be invested in directly.

Historical data shown represents past performance and does not guarantee comparable future results. The information and statistical data contained herein were obtained from sources believed to be reliable but in no way are guaranteed by JSF Financial, LLC or NewEdge Securities, Inc. as to accuracy or completeness. The information provided is not intended to be a complete analysis of every material fact respecting any strategy. The examples presented do not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy. Diversification does not ensure a profit or guarantee against loss. Carefully consider the investment objectives, risks, charges and expenses of the trades referenced in this material before investing.

Asset Allocation and Diversification do not guarantee a profit or protect against a loss.

The Bloomberg Barclays U.S. Aggregate Bond Index measures the investment-grade U.S. dollar-denominated, fixed-rate taxable bond market and includes Treasury securities, government-related and corporate securities, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

The S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market.

The Nasdaq Composite is a market-capitalization-weighted index consisting of all Nasdaq Stock Exchange listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds or deben­ture securities.

Treasury Bond- is a U.S. government debt security with a fixed interest rate and maturity between two and 10 years.

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. GDP is the most commonly used measure of economic activity.

By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.­­

Sources:

[1] S&P 500 Has One of Best November Gains in Century: Markets Wrap (yahoo.com)

[2] https://www.wsj.com/finance/stocks/global-stocks-markets-dow-news-11-30-2023-d5f0efb6

[3] Dow Finishes November at 2023 High – WSJ

[4] Dow Finishes November at 2023 High – WSJ

[5] S&P 500’s Historic 8.9% Rally Blindsides Skeptics on Wall Street (yahoo.com)

[6] Dow Finishes November at 2023 High – WSJ

[7] Fed Extends Pause on Rate Hikes but Keeps Door Open to Moving Higher – WSJ

[8] Dow Finishes November at 2023 High – WSJ

[9] https://www.wsj.com/finance/stocks/global-stocks-markets-dow-news-11-30-2023-d5f0efb6

[10] https://www.wsj.com/finance/stocks/these-are-some-of-the-stocks-leading-the-markets-year-end-rally-0da16b93

[11] How Rising Profits Could Prevent the Economy From Faltering – WSJ

[12] US manufacturing mired in weakness, economy heading for slowdown | Reuters

[13] US Economic Slowdown Has Begun as Consumer Spending Cools – Bloomberg (Americans Are Finally Turning Frugal After Splurging Over Summer (fa-mag.com))

[14] https://www.ft.com/content/dfaf27ac-e84f-4e33-9984-19194cf63dd7

[15] https://www.ft.com/content/dfaf27ac-e84f-4e33-9984-19194cf63dd7

[16] Congress ends threat of a government shutdown | AP News

[17] Here are the 8 House Republicans who voted to oust McCarthy as House speaker | CNN Politics

[18] Trump ally Mike Johnson elected House speaker three weeks after McCarthy ouster | CNN Politics

[19] US House passes spending bill to avert government shutdown | Reuters

[20] Senate passes bill to avert government shutdown, sending it to Biden to sign – The Washington Post

[21] Senate passes bill to avert government shutdown, sending it to Biden to sign – The Washington Post

[22] Moody’s sends a warning to America: Your last AAA credit rating is at risk | CNN Business

[23] https://www.wsj.com/finance/investing/wall-street-loves-washingtons-new-debt-approachfor-now-555a9501

[24] https://www.wsj.com/finance/investing/wall-street-loves-washingtons-new-debt-approachfor-now-555a9501

[25] https://www.wsj.com/finance/investing/wall-street-loves-washingtons-new-debt-approachfor-now-555a9501

[26] https://www.wsj.com/finance/investing/wall-street-loves-washingtons-new-debt-approachfor-now-555a9501

[27] https://www.wsj.com/finance/stocks/global-stocks-markets-dow-news-11-30-2023-d5f0efb6

[28] S&P 500 Has One of Best November Gains in Century: Markets Wrap (yahoo.com)

[29] S&P 500’s Historic 8.9% Rally Blindsides Skeptics on Wall Street (yahoo.com)

[30] The Fed – Meeting calendars and information (federalreserve.gov)

[31] Morning Bid: Powell’s final shot to shape markets before December Fed meeting | Reuters

[32] S&P 500’s Historic 8.9% Rally Blindsides Skeptics on Wall Street (yahoo.com)

Quick Take: US equities markets corrected as US long-term bond yields rose above 5%.¹

Battered US stocks dipped to five-month lows as both the S&P 500 and Nasdaq (down 2.2% and 2.8%, respectively) fell into correction territory after dropping 10% from July highs.^{2, 3, 4, 5}

During the third-quarter earnings season, even though around 75% of companies beat expectations, stocks were disproportionally sensitive to bad news.⁶ Momentum in tech stocks turned as the Nasdaq 100 erased about a third of its AI-driven advance.⁷ As we’ve discussed the last few months, stocks have been under pressure because of a sharp rise in bond yields (prices fell).⁸

Bond yields softened towards the end of the month (prices rose) after the 30-year bond peaked around 5.18%, and the 10-year surpassed 5% for the first time in 16 years.⁹ According to Treasury Secretary Janet Yellen, the strength of the economy has driven the rise in bond yields.¹⁰

A Strong Economic Pulse

Source: https://www.bloomberg.com/news/articles/2023-10-28/world-economy-latest-inflation-picks-up-in-us-and-tokyo

Robust consumer spending drove a stronger-than-expected 4.9% surge in 3^rd quarter GDP, the fastest expansion in nearly two years.¹¹ Despite lingering inflation, a tight labor market continues to support household spending, as Americans also borrow and tap into savings.

So why hasn’t the economic strength fueled inflation? US core PCE data, the Fed’s preferred inflation gauge, slowed further in September on falling goods prices.¹²

Fed Chair Jay Powell noted that despite strong demand, labor supply has also increased, leading to a healthy rebalancing in the employment market.¹³ In the past year, the labor force grew by about three million people, which is four times the typical long-run rate.¹⁴ That’s why wage increases are still coming down.

Geopolitical Tensions

Internationally, tensions have undeniably grown in the global landscape. We are seeing violence from the Israel-Hamas war, a persistent war in Ukraine, and deteriorating U.S.-China relations.¹⁵ What has been the impact on markets?

The answer is — outside of local market reactions, not much. The horrors in Ukraine have left the S&P 500 index almost exactly where it was when Putin’s troops invaded.¹⁶ Oil and gold have crept higher since the alarming developments in Israel and the Gaza strip, but we haven’t seen a significant “risk-off” move into bonds that might increase prices and depress yields.¹⁷ Geopolitical shifts may instead be reinforcing higher interest rates as countries invest in defense spending and reduce trade.¹⁸

Source: https://www.blackrock.com/corporate/literature/whitepaper/bii-global-outlook-in-charts.pdf

According to BlackRock, strategic competition between the US and China is one of the top geopolitical risks facing markets worldwide.¹⁹ Last year, the US began imposing export controls on cutting-edge semiconductors used for AI, and China has retaliated by restricting exports of critical materials for semiconductor manufacturing.^{20, 21} Nvidia’s Chief Financial Officer noted that long-term export restrictions will result in a permanent loss of opportunities for the US industry and impact future business and financial results.²²

This past month, the Biden administration further toughened restrictions on semiconductor exports. However, there are signs that the US and China may try to reboot ties as President Biden and Chinese leader Xi Jinping agreed in principle to meet at a summit in November.²³

Historic Deals Tentatively Reached

Talks between the United auto workers and the Big 3 — GM, Ford, and Stellantis — reached a welcome tentative resolution after six weeks of labor strikes. The expected deals secured record concessions for union members with raises, cost-of-living adjustments, and enhanced profit-sharing bonuses.²⁴ The strike has been the longest US auto strike in 25 years, and the deals are waiting for approval by union members.²⁵

Ford noted that the concessions would add $850-$900 in costs per vehicle assembled. However, the finance chief said they would work to “find productivity and cost reductions to deliver on profitability targets.²⁶ Ultimately, their cars must still compete with the rest of the market, including with nonunionized automakers, which means that car prices won’t necessarily see much of an impact.

While putting the final touches on this month’s newsletter, it was announced that SAG-AFTRA’s negotiating committee reached a deal with studios to end an almost four-month-long strike.²⁷ Board members from the actor’s union voted to ratify the agreement, which includes wage increases and controls surrounding the use of artificial intelligence among other items. Union members will now vote on the agreement over the next several weeks.²⁸ The strike caused much pain in the local economy here in Los Angeles as well as beyond, and we hope that the deal leaves both sides satisfied with the result.

Looking Ahead

In the first week of November, the Fed declined to raise interest rates again. Elevated bond yields ease some of the pressure on the Fed to tighten monetary policy, though a final rate hike for 2023 is still possible. Futures markets indicate around a 70% probability that rates will stay the same at the December Federal Open Market Committee (FOMC) meeting.²⁹

PIMCO believes both growth and inflation have peaked – we may see the economy transition from strength to weakness next year as fiscal support diminishes and the delayed impact of tighter monetary policy materializes.³⁰ Consumer spending also may not be sustainable.

Source: https://www.bloomberg.com/news/newsletters/2023-10-20/bloomberg-evening-briefing-the-us-economy-just-had-a-stellar-summer

Yet economists have raised US growth projections and lowered odds of a downturn to a one-year low.³¹

As Schroder’s group chief investment officer Johanna Kyrklund says, valuation matters again – it’s no longer “The fear of missing out (FOMO) but a ‘do your homework’ market.”³²

As we navigate the complexities that each new month may bring, we do so with the confidence that comes from a well-thought-out, disciplined investment approach. After all, it’s not about weathering a single storm, but sailing smoothly over decades.

Please reach out if you’ve had any changes in circumstances or goals so that we can make sure your portfolio fits your needs. If you haven’t already, it’s a great time to schedule your year-end review. Wishing you all a Happy Thanksgiving! As we count our blessings, we thank you for trusting us on your financial journey. We are grateful for your continued partnership and confidence through the uncertainty this year has brought us. We hope your day is full of your favorite dishes and memorable time spent with friends and family!

Your Friends at JSF

The information expressed herein are those of JSF Financial, LLC, it does not necessarily reflect the views of NewEdge Securities, Inc. Neither JSF Financial LLC nor NewEdge Securities, Inc. gives tax or legal advice. All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed constitutes a solicitation or recommendation for the purchase, sale or holding of any security. Investing involves risk, including possible loss of principal. Indexes are unmanaged and cannot be invested in directly.

Historical data shown represents past performance and does not guarantee comparable future results. The information and statistical data contained herein were obtained from sources believed to be reliable but in no way are guaranteed by JSF Financial, LLC or NewEdge Securities, Inc. as to accuracy or completeness. The information provided is not intended to be a complete analysis of every material fact respecting any strategy. The examples presented do not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy. Diversification does not ensure a profit or guarantee against loss. Carefully consider the investment objectives, risks, charges and expenses of the trades referenced in this material before investing.

Asset Allocation and Diversification do not guarantee a profit or protect against a loss.

The Bloomberg Barclays U.S. Aggregate Bond Index measures the investment-grade U.S. dollar-denominated, fixed-rate taxable bond market and includes Treasury securities, government-related and corporate securities, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

The S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market.

The Nasdaq Composite is a market-capitalization-weighted index consisting of all Nasdaq Stock Exchange listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds or deben­ture securities.

Treasury Bond- is a U.S. government debt security with a fixed interest rate and maturity between two and 10 years.

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. GDP is the most commonly used measure of economic activity.

By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.­­

Sources:

¹ https://finance.yahoo.com/news/ackman-gross-abandon-bearish-bond-191916624.html

² S&P 500 Dips To 5-Month Low As Earnings Season Highlights Struggles Of ‘Magnificent 7’ Tech Stocks To Keep Rally Afloat (forbes.com)

³ Nasdaq Correction Could Give Way to Buying Opportunity | Nasdaq

⁴ Wall St closes higher on eve of Fed decision; investors assess earnings | Reuters

⁵ Stock market today: Live updates (cnbc.com)

⁶ US stock market correction: What comes next? | UBS United States of America

⁷ How Low Can It Go? Getting to the Bottom of the Nasdaq Selloff (yahoo.com)

⁸US stock market correction: What comes next? | UBS United States of America

⁹https://finance.yahoo.com/news/ackman-gross-abandon-bearish-bond-191916624.html

¹⁰Yellen says US GDP is a ‘good strong number’, may keep bond yields higher (yahoo.com)

¹¹Resilient U.S. economy grew at a ‘stellar’ pace over the summer (msnbc.com)

¹²Inflation Edges Down in September, in Line With Estimates | Economy | U.S. News (usnews.com)

¹³Fed Takes Heart in a Supply-Side Boom – WSJ

¹⁴ Fed Takes Heart in a Supply-Side Boom – WSJ

¹⁵ Markets in an Era of Clashing Superpowers – Bloomberg

¹⁶ Markets in an Era of Clashing Superpowers – Bloomberg

¹⁷ Markets in an Era of Clashing Superpowers – Bloomberg

¹⁸ Markets in an Era of Clashing Superpowers – Bloomberg

¹⁹ Geopolitical risk dashboard (blackrock.com)

²⁰ How the U.S. Stumbled Into Using Chips as a Weapon Against China – WSJ

²¹ U.S. Tightens Curbs on AI Chip Exports to China, Widening Rift With Nvidia and Intel – WSJ

²² U.S. Tightens Curbs on AI Chip Exports to China, Widening Rift With Nvidia and Intel – WSJ

²³ U.S., China Agree in Principle to Biden-Xi Summit – WSJ

²⁴ UAW: Winners and losers of 2023 talks with GM, Ford, Stellantis (cnbc.com)

²⁵ The Big Three are paying a big price to end the UAW strike, but car buyers may get spared | CNN Business

²⁶ UAW: Winners and losers of 2023 talks with GM, Ford, Stellantis (cnbc.com)

²⁷ https://www.latimes.com/entertainment-arts/business/story/2023-11-08/actors-strike-sag-aftra-amptp-contract-deal-ai-streaming

²⁸ https://apnews.com/article/actors-strike-deal-d5f9769fd8a263170141a60da64cdc98

²⁹ Live updates: Markets rise after Federal Reserve hits pause again on rate hikes (cnn.com)

³⁰ Cyclical Outlook: Post Peak | PIMCO

³¹ Bloomberg Evening Briefing: The US Economy Just Had a ‘Stellar Summer’ – Bloomberg

³² Markets in an Era of Clashing Superpowers – Bloomberg