November 20, 2023
Equity markets rallied sharply last week as macroeconomic data supported the current Fed peak and soft-landing narratives. All sectors were higher, led by real estate, materials, and utilities. Breadth was strong, led by the Russell 2000 rising nearly 5.5%, marking its second-best weekly performance of the year. The S&P 500 and NASDAQ Composite rose 2.31% and 2.42%, respectively, and posted their third straight week of gains. Treasury yields trended lower driven by softer-than-expected inflation numbers.
US markets started the week quietly on Monday and traded in a narrow range throughout the day. Markets opened lower partially driven by late Friday’s news that Moody’s cut its outlook on US debt to negative from stable.1 Odds of a government shutdown fell as House Speaker Johnson pushed forward a clean stopgap funding bill that extends funding for several departments and excludes some demands from House conservatives.2
Markets jumped higher on Tuesday’s softer-than-expected CPI report. CPI was flat in October and increased 3.2% yoy but both measures were below consensus.3 Core CPI rose 4% yoy, the smallest increase since September 2021.3 These numbers were driven by declines in hotels, used vehicles, and airline fares.3 Shelter costs rose 0.3% for the month, finally showing some signs of relief after representing nearly half of September’s increase.3 Breadth was strong and Big Tech, REITs, and utilities were some of the day’s strongest performers. Energy stocks struggled on the day as the IEA reported the oil market is set to return to a surplus in 2024.4
On Wednesday, equity markets extended Tuesday’s rally as macroeconomic data continued to support slowing inflation and a surprisingly strong US consumer. For the first time since March, retail sales fell 0.1% and retail ex-auto rose 0.1% in October, but results were better than expected.5 Online sales were higher but notable declines were seen in auto sales, furniture, department stores, and sporting goods/hobbies.5 Treasury yields were weaker across the curve as the soft-landing narrative gained support driven by cooling inflation and resilient consumer spending. PPI fell 0.5% in October, beating estimates of a 0.1% increase and the biggest monthly drop since April 2020.6 The declines were driven primarily by gasoline prices, which fell 15.3%.6
Equity markets were quiet on Thursday and Friday as investors continued to digest recent macroeconomic developments. Initial jobless claims were 231K, higher than consensus of 220K, but still remain at historically low levels.7 October housing starts were 1372K (+1.9%) while building permits rose 1487K (+1.1%), both metrics surprising on the upside.8 Despite the rise, housing starts and permits may remain constrained by high rates and affordability.