Weekly Market Update: November 27, 2023
The nation’s economy has proven resilient so far this year, and a much-feared recession has yet to materialize. Gross domestic product (GDP) has managed to increase, with a healthy labor market and a low unemployment rate providing a supportive foundation. Looking ahead, many economists anticipate positive, but moderate, economic growth in 2024, while citing that the current level of interest rates could lead to challenges in a number of areas (consumer spending, real estate, corporate investment, etc.). Overseas, global unrest, which could potentially destabilize the energy market, is also of some concern.
Meanwhile, inflationary pressures appear to be easing. The Consumer Price Index (CPI) showed prices rose 3.2% during the month of October (year over year), which was a step in the right direction. (For perspective, CPI inflation peaked with a reading of 9% in June of 2022). Although the Federal Reserve would like to see further progress, the interest rate hikes already implemented by the central bank are still moving through the system. The Fed chose not to lift rates at its November meeting, and no action is anticipated at the next Federal Open Market Committee gathering in December. The Fed’s softer position quickly rippled through the bond market, bringing the yield on the 10-year Treasury bond to around 4.5%, down from the 5% mark hit in October. This development likely fueled the recent stock market rally.
The corporate sector has held up well. The third-quarter earnings season has largely concluded, with close to 95% of the names in the S&P 500 Index having reported. The majority of companies delivered better-than-anticipated results, and additional progress is expected during the fourth quarter. Notably, corporate profit margins have been widening, and could improve further, as recent product price increases are complemented by moderating costs.
The stock market has clearly been performing better lately. The S&P 500 began to rally at the close of October and has since recovered considerable lost ground. At the time of this writing, the index was up nearly 20% year to date. While that gain has been led all year by the giant technology companies, the current rally has been fairly broad based, with most sectors making constructive contributions.
Conclusion: In the current environment, we recommend that investors hold a balanced portfolio, including shares of quality businesses.