Inflation remains sticky at both the retail and wholesale levels as measured by the Consumer and Producer Prices Indexes (see below). This caused the yield curve to steepen (long-term interest rates as compared to short-term rates) and raised the possibility that after what we believe will be a hawkish 0.25% interest rate cut at the conclusion of the Fed’s two-day regularly scheduled policy meeting this Wednesday, it may be time for a pause to assess. That said, given the time of year and the nature of this week’s pullback, it appears to be investors looking to book profits as we enter the homestretch of 2024.
- The Fed will hold its final regularly scheduled policy meeting this coming Tuesday and Wednesday and given the fact that they have not indicated otherwise, we would expect them to cut interest rates by 0.25% at the conclusion so as not to surprise the financial markets. We would also expect Fed Chair Powell to emphasize to Wall Street that they will monitor the data closely and remain data dependent.
- Intermediate- and longer-dated yields on U.S. Treasurys rose this past week on concern that inflation may stay a bit elevated above the Fed’s two-percent target longer than was initially expected. We have believed for some time that this caution is warranted, especially given the wide range of potential economic outcomes given the perceived economic policies of incoming President-Elect Trump, specifically in regard to tariffs.
- The NASDAQ Composite closed above 20,000 for the first time Wednesday before settling back just under that at the close of trading for the week. The tech laden index is being pushed higher by demand for stocks such as Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), Tesla (TSLA) and semiconductors.
- More stocks within the S&P 500 have been lower as compared to higher for ten consecutive days as of the close of business on Friday, the first time this has occurred since the time immediately following September 11, 2001. As breadth is a measure of the health of the market, this is an issue to keep an eye on.
- Mortgage Rates according to the Federal Home Loan Mortgage Corporation (FreddieMac), “the 30-year fixed-rate mortgage decreased for the third consecutive week. The combination of mortgage rate declines, firm consumer income growth and bullish stock market have increased homebuyer demand in recent weeks. While the outlook for the housing market is improving, the improvement is limited given that homebuyers continue to face stiff affordability headwinds.” In fact, according to the National Association of Realtors, even though affordability is well off its October 2023 lows, it remains 42.9% below its high set October 2020. (Sources, Federal Home Loan Mortgage Corporation, National Association of Realtors)
It’s The Economy…”
- Prices at the wholesale level as measured by the Producer Price Index rose 0.4% during November after edging up 0.3% during October. Over the past year the PPI has risen 3.0%, up from 2.4% y/y last month, but down from a peak rate of 11.7% during March 2023. Energy prices rose 0.2% during November (-6.2% y/y) after rising 0.1% during October. Food prices rose 3.1% during November (5.1% y/y) after falling 0.2% in October. Excluding food and energy, the core PPI rose 0.2% during November (3.4% y/y), after rising 0.3% in October. Prices for Intermediate Goods(prices in the production pipeline) were unchanged in November (-0.5% y/y), after rising 0.6% during October. (Source, U.S. Bureau of Labor Statistics)
- Prices at the retail level as measured by the Consumer Price Index rose 0.3% during November (2.7% y/y), after rising 0.2% the each of the prior four months. The CPI has fallenfrom a y/y high of 9.1% during June 2022 but edged up from 2.6% y/y one month ago. Energy prices rose by 0.2% during November (-3.2% y/y) after remaining unchanged in October after falling 1.9% during September. Food and beverage prices rose 0.4% during November (2.4% y/y) after rising 0.2% during October. The cost of shelter rose 0.3% during November (4.7% y/y) after rising 0.4% in October.Excluding food and energy, the core CPI rose 0.3%, its fourth consecutive such rise. Over the past year the core CPI has risen 3.7% y/y, well below the peak of 7.6% in February 2022 but up from 3.6% y/y one month prior. (Source, U.S. Bureau of Labor Statistics)
Upcoming Economic Reports scheduled to be released this week include the following: on Tuesday, November Retail Sales, November Industrial Production, November Capacity Utilization and October Business Inventories; on Wednesday, November Housing Starts; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits, the Second Revision to Q3 Gross Domestic Product and November Index of Leading Economic Indicators; and, on Friday, December Consumer Sentiment from the University of Michigan along with November Personal Income and Spending.
The Current Quarterly Earnings Season has begun to wind down as just a few stragglers remain. However, several companies of note are scheduled to report, including the following– General Mills (GIS), Lennar (LEN), Micron Technology (MU), CarMax (KMX), FedEx (FDX), Nike (NKE) and Paychex (PAYX).
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Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
