Weekly Market Performance–December 4, 2023

LPL Research provides its Weekly Market Performance for the week of December 4, 2023. The team highlights the sixth straight week of gains for the S&P 500 and NASDAQ, the October JOLTS report, and the Moody's downgrade of China's growth prospects, and offers a preview of the economic landscape for the week ahead.

Stock Index Performance

S&P 500 Index Sector

Fixed Income and Commodities

U.S. and International Equities

Markets Mostly Higher: Both the S&P 500 Index along with the Nasdaq Composite witnessed their sixth consecutive weekly rise as Google’s AI model impressed investors. Communication services, consumer discretionary, and information technology led this week’s market returns. Energy is this week’s laggard given weakness in energy prices.

Sentiment remains bullish according to the most recent AAII Survey, however the percent of bears grew from a neutral stance. The percentage of bullish investors increased slightly to 47.3%, which is well above the historical long-term average of 37.5%. Bearish investors jumped to 27.46%, just below the historical average of 31.0%. Neutral investors declined from 31.7% to 25.3.

Fixed Income Higher: The Bloomberg Aggregate Bond Index continued higher this week amid momentum from peak Federal Reserve (Fed) hawkish monetary policy being reached and economic soft-landing narratives. In addition, high yield bonds also gained ground this week.

Despite the recent challenges for fixed income markets, LPL Research believes there are several reasons to be optimistic as we head into the new year. The end of the Fed’s rate hiking campaign, the favorable risk/reward for bonds, and the potential for equity-like returns (without equity-like risks) are things we’re optimistic about for 2024. That’s not to say there won’t be volatility. There will be, but we think the risk/reward for fixed income is as attractive as it’s been in some time and may expect better returns in 2024.

Commodities Mixed: West Texas Intermediate Crude Oil witnessed its sixth weekly decline in the past seven weeks amid China and global demand concerns. Reports that OPEC+ may hold an emergency session to discuss the possibility of a unified agreement for deeper production cuts, have helped push prices slightly higher during mid-week.

Lobbying for broad approval regarding a reduction in output has been in the forefront, as an “emergency” session might be when an official statement is made public. Comments from various OPEC+ constituents, however, typically provide the press with headlines well before meetings. With U.S. production levels at over 13 million barrels a day, which represents a record high, and China, the world’s largest importer of crude oil, continuing to post weaker than expected economic data releases, crude oil prices have declined as the global growth outlook remains murky.

Economic Weekly Roundup

Moody’s Cuts Economic Outlook for China as U.S. Economic Data Stalls: The world’s two largest economic powers are a focus for markets as concerns mount over their respective economic strength. With markets reinforced by de-escalating 10-year Treasury yields, questioning the rationale for declaring that the Federal Reserve (Fed) delivered a “goldilocks” or “sweet spot” for the U.S. economy following the 5.2% Q3 GDP revision, growth prospects for China have been downgraded by the rating agency Moody’s.

Currently, estimates for U.S. growth have been ratcheted down to below 2% for Q4, while China’s key property sector continues to be mired in debt and liquidity problems. Accordingly, Moody’s reduced its credit rating on the sovereign level, to “negative” offering the property crisis as its primary cause for concern. In addition, the credit agency reduced its GDP forecast for 2024 and 2025 to 4% below the current “around 5%” expectation. Although markets are forward-looking, expectations are that global markets—at the core—will need help from central banks, and for China specifically, an infusion of fiscal stimulus.

October Job Openings and Labor Turnover Survey (JOLTS): Job openings fell to 8.7 million in October, the lowest since March 2021, as firms slowed demand for labor. The demand and supply for labor is getting closer into balance. As more individuals re-enter the labor force, investors should expect the ratio of openings to the unemployed to revert to pre-pandemic levels. Markets should expect demand and supply for labor to come closer into balance, which should solidify expectations the Fed is done tightening, suppressing yields, and supporting risk appetite.

German October Production: German industrial orders declined unexpectedly in October, falling by over 3.5% on the previous month on a seasonally and calendar-adjusted basis. Economists polled by FactSet pointed to a decline of 0.15%, following a revised 0.7% increase in September. Excluding large-scale orders, manufacturers saw a 0.7% rise in new orders in October, according to the data.

Weekly And Monthly Employment Report: Continuing claims came in below the prior week as well as analyst expectations. Initial claims came in at analyst expectations. We believe the labor market is expected to further loosen over the coming months as companies respond to slowing demand, partly driven by the Fed’s tighter monetary policy.

In November, the government and businesses together added 199,000 to their payrolls. Within just the private sector, payrolls increased by 150,000, right in line with our expectations. The leisure and hospitality sectors are still operating with less workers than just before the onset of the pandemic, as firms are reticent to staff up amid a slowdown. Retailers cut jobs in three of the last four months as they prepare for a pullback in consumer activity. The unemployment rate dipped to 3.7% from 3.9%, driven by a sizable decline in the unemployment rate for teenagers.

The Week Ahead

The following economic data is slated for the week ahead:

• Tuesday: Consumer Price Index (Nov), hourly earnings (Nov), average workweek (Nov), Treasury budget (Nov)
• Wednesday: Producer Price Index (Nov), FOMC Meeting
• Thursday: Weekly initial and continuing unemployment claims, retail sales (Nov), business inventories (Oct), export/import price index (Nov)
• Friday: Capacity utilization (Nov), industrial production (Nov), manufacturing production (Nov), S&P Global PMI Manufacturing (Dec)