Weekly Market Performance–November 27, 2023

LPL Research offers its Weekly Market Performance for the week of November 27, 2023. This week highlights a strong finish for equities, continued bullish sentiment, and a revised GDP for the third quarter.

Stock Index Performance

S&P 500 Index Sector

Fixed Income and Commodities

U.S. and International Equities

Markets Higher: Markets ended the week higher as we started December. The Dow Jones Industrial ended November with an 8.9% gain, rebounding from its three-month losing streak. The S&P 500 Index also increased 8.9% in November as the Nasdaq Composite returned 10.7%. Both indexes had their best monthly returns since July 2022, and are trading 1% away from their respective 2023 highs. European equity markets also recorded a strong November as Eurozone inflation is showing signs of easing.

Last quarter earnings were generally seen as positive; however, the major market driver was the belief that the Federal Reserve (Fed) is finished increasing interest rates. In addition, many investors believe that the U.S. economy may witness a soft landing.

Sentiment continues to be bullish, according to the most recent AAII Survey. The percentage of bullish investors increased slightly to 48.8%, well above the historical long-term average of 37.5%. Bearish investors declined to 19.6%, below the historical average of 31.0%.

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

The last few years have been challenging for fixed income investors, with 2022 going down as the worst year on record for the Bloomberg Aggregate Bond Index. And while 2023 was supposed to be the year for bonds, fixed income returns for most core bond categories have only recently turned positive for the year. We believe the Federal Reserve will pause on rate hikes, which should aid fixed income moving forward.

Commodities Mixed: Oil prices finished negative as The Organization of Petroleum Exporting Countries and its allies (OPEC+) agreed to output cuts approaching 2 million barrels per day (bpd) for early next year, which includes Saudi Arabia’s voluntary supply reduction. Milder-than-expected weather has pressured natural gas as production reached a record high. Gold and silver witnessed a second straight month of gains as the peak Fed narrative gains traction.

Economic Weekly Roundup

October New Home Sales: After a very volatile 2022, the pace of new home sales has stabilized around the pre-pandemic rate. This is good news for homebuilders prepping for 2024. Median prices for new homes are down roughly 17% from last year as inflation pressures moderate amid higher borrowing costs. Amid extremely low inventory of existing homes on the market, new home sales will likely remain robust to meet demand. As mortgage rates fall and the Fed pivots away from hiking rates, homebuilders should expect continued growth in business activity.

Q3 GDP Revisions: The revised estimate for Q3 GDP brought about surprises. Consumer spending was revised down, but greater upward revisions to government and business spending pushed headline growth to 5.2% annualized from 4.9%. Consumer spending was revised down to 3.6% annualized from 4.0%, but government spending was revised up.

November Beige Book: The November Beige Book reported that despite the tightness of the labor market and the shortage of skilled workers, several districts reported flat to only modest increases to payrolls. Several areas of the country reported declines in starting wages for unskilled workers, a sign that we have likely seen a shift in overall labor demand.

However, businesses are still paying a premium to attract and retain talent. Construction costs are starting to decline, a leading indicator of continued cooling in pricing pressures. Banks saw a slight uptick in consumer delinquencies, a theme corroborated by other public reports. The anecdotal evidence suggests the Fed is getting what it wished for: an economy experiencing a painless, measured slowdown.

October Personal Consumption: Headline inflation in October was unchanged month-over-month, pulling the annual rate down to 3.0% from 3.4% in September. The economy is in a period of flux, as we illustrated in the inflation data. Prices for goods decreased 0.3% from a month ago as prices for services increased 0.2% over the month. Goods prices likely declined as consumer demand waned, especially for durable goods.

Consumer demand was strong in international travel, food services, and accommodations. If consumers return to normal spending patterns, we should notice a modest deceleration in the rate of spending as consumers recalibrate. The 3-month annualized rate of core inflation does not signal any potential resurgence in inflation.

Weekly Employment Report: Initial and continuing claims came in above the prior week as well as 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.

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: Durable orders (Oct), factory orders (Oct)
• Tuesday: BEA Total Light Vehicle Sales (Nov), PMI Composite (Nov), S&P Global PMI Services (Nov), ISM Services (Nov), JOLTS Job Openings (Oct)
• Wednesday: ADP Employment Survey (Nov), unit labor costs (Q3), productivity (Q3), trade balance (Oct)
• Thursday: Weekly initial and continuing unemployment claims, wholesale inventories (Oct), consumer credit (Oct)
• Friday: Hourly earnings (Nov), average workweek (Nov), manufacturing payrolls (Nov), nonfarm payrolls (Nov), unemployment rate (Nov), Michigan sentiment (Dec)