Economic Update 11-13-2023 

• In an oddly quiet week for economic data, consumer sentiment declined, jobless claims were little changed, while the Fed’s bank loan officer survey showed continued tighter standards. 
• Stocks were mixed globally with gains in the U.S. large cap group and a small increase in Europe offset by declines elsewhere due to mixed sentiment, mixed data, and disappointing central bank communications. Bonds generally declined as interest rates ticked back up. Commodities lost ground generally, led by a drop in crude oil prices with fewer geopolitical concerns. 

U.S. stocks were mixed on the week, with large caps experiencing gains, while small caps weakened. Equities generally fared well other than Thurs., when Fed Chair Powell reiterated in a speech that policy remains ‘restrictive,’ and the FOMC is keeping all options open. More directly, he noted the FOMC was ‘not confident’ that policy was restrictive enough. In contrast to the more dovish post-FOMC meeting message the prior week, this was taken more hawkishly (likely intentionally, to offset the earlier message). Other than communication, however, little else has changed. Threats of a government shutdown in a week loom again, with odds of a temporary extension until the new year remaining the highest probability case. 

By sector, technology led the way with a gain of nearly 5%, led by earnings results, followed by more tempered gains for communications and industrials. On the negative side, energy fell by nearly -4% along with weaker oil prices. Along with utilities, real estate also fell back with a move higher in interest rates. 

Foreign stocks were mixed, with Europe experiencing gains, while the U.K. and Japan fell back, the latter quite sharply. Lackluster sentiment in Europe and the U.K. (especially) appeared by be led by central bank comments that rate cuts may not be in the cards immediately (they’re further along on the pause path, in terms of communications than is the U.S. obviously). Economic data in developed markets remains mixed and flattish, which has brought on the expectations for potential rate cuts. Emerging markets were mixed, with gains in Brazil, India, Taiwan, and Korea offset by China and elsewhere. Chinese prices have again dipped back into deflation, with economic data remaining mixed as well.  

Interestingly, South Korea has prohibited the short-selling of stocks until June 2024, in efforts to better level the playing field between retail and institutional investors, with the latter viewed as engaging in unfair activity. This has been tried in some markets before, albeit usually briefly (like the U.S. SEC banning the short sale of financial stocks during the 2008 crisis), and debate persists about the ultimate impact. As with many seeming well-intentioned government policies, there are side effects. Efficient market theorists argue that short-selling is needed to maintain a ‘balance’ of opinion between those bullish and bearish on a given stock—the free market is the ultimate arbiter and source of price discovery. Otherwise, if only long positions are allowed, it could promote ‘excess’ ownership, and hence, asset price bubbles. 

Bonds declined along with the move higher in rates, led by both the hawkish Fed communication and the results after U.S. Treasury debt auctions. For the auctions, despite fears of U.S. fiscal deficits resulting in too-high supply that wouldn’t be well received by markets, key maturities of 3y and 10y debt featured high demand; on the other hand, 30y had a harder time, seeing the lowest demand in several years. (Then again, the 30y year area includes more niche participants, such as pension funds and insurance companies, as opposed to the more traditional parts of the curve.) Weaker auctions naturally raise concern from simple supply/demand reasons, as fewer buyers mean lower prices and higher yields to entice buyers. A ransomware attack targeting a major Chinese bank (and large owner of Treasuries), caused some disruptions in settlement logistics. By segment, floating rate bank loans outperformed, while interestingly, investment-grade corporate outperformed both Treasuries and high yield. International bonds lagged due to a stronger dollar during the week. 

Commodities fell back overall last week, with declines in energy and metals. Crude oil fell over -4% last week to $77/barrel, with concerns over the Middle East continuing to ease, as well as concerns over next year’s demand, particularly in China. 

Period ending 11/10/2023	1 Week %	YTD %
DJIA	0.72	5.29
S&P 500	1.35	16.60
NASDAQ	2.40	32.76
Russell 2000	-3.11	-1.92
MSCI-EAFE	-0.90	6.17
MSCI-EM	0.02	1.44
Bloomberg U.S. Aggregate	-0.29	-0.82

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2022	4.42	4.41	3.99	3.88	3.97
11/3/2023	5.53	4.83	4.49	4.57	4.77
11/10/2023	5.53	5.04	4.65	4.61	4.73

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                    

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.