Monthly Market Insights | December 2023
Stock prices surged last month as positive inflation data and falling bond yields emboldened investors.
The Dow Jones Industrial Average gained 8.77 percent, while the Standard & Poor’s 500 Index advanced 8.92 percent. The Nasdaq Composite, which has led all year, picked up 10.70 percent.1
Inflation Eases, Bond Yields Fall
The fears that have dragged on the stock market since August evaporated in November, as fresh inflation data reaffirmed continuing progress in the fight against rising prices.
The good news on the inflation front, coupled with upbeat comments by Fed officials, helped drive bond yields lower. Additionally, the bond market was relieved following news that a 20-year Treasury Note auction was well received.
CPI Report Sparks Rally
When October’s Consumer Price Index (CPI) report was released mid-month, showing prices flat from the previous month and a cooler-than-forecasted core CPI (excludes food and energy), stocks surged, with the S&P 500 index rising 2.9 percent. The yield on the 10-year Treasury dropped 19 basis points—a huge one-day move.2
Rate-Hike Cycle Ending?
The combination of decelerating inflation, constructive economic data, and generally benign commentary from Fed officials over the course of the month generated an increasingly optimistic outlook that the Fed’s rate-hike cycle may be at its end, and the prospect of a rate cut sometime in the first half of 2024.
Solid Corporate Reports But Cautious Outlooks
Corporate earnings were also a key focal point in last month’s stock market actions. With 94 percent of S&P 500 companies reporting, 82 percent reported a positive earnings surprise, while 62 percent reported a positive revenue surprise. On a more cautionary note, 64 S&P 500 companies issued negative earnings guidance for the fourth quarter, while 32 issued positive guidance.3
With powerful gains already registered for the month, investors took a breather in the final week of trading to digest November’s exceptional gains.
For the month, all industry sectors, except Energy (–0.72 percent), ended higher, including Communications Services (+7.80 percent), Consumer Discretionary (+10.97 percent), Consumer Staples (+4.13 percent), Financials (+10.94 percent) Health Care (+5.4 percent), Industrials (+8.83 percent), Materials (+8.35 percent), Real Estate (+12.48 percent), Technology (+12.90 percent), and Utilities (+5.14 percent).4
What Investors May Be Talking About in December
Investors’ attention is expected to shift to the two-day Federal Open Market Committee (FOMC) meeting, which ends on December 13.
The focus may be less on the actual rate decision—since the markets expect the Fed to maintain the federal funds rate at its current level. Instead, investors may pay close attention to the wording of the FOMC statement announcing the decision and, most especially, to Fed Chair Powell’s remarks in the press conference that will follow the meeting.
Following the November meeting, Powell said that the Fed was not convinced that the inflation battle had been won and that additional progress toward its two percent inflation goal may require further restrictive monetary actions. The news unsettled investors, who had hoped that the rate hike cycle had come to an end.
While Powell is unlikely to change the substance of his message, investors will be looking for any indication that his stance has shifted.
The MSCI-EAFE Index gained 9.09 percent in November on moderate inflation and hopes of interest rate cuts.5
European stocks performed strongly, with advances experienced in France (+6.17 percent), Germany (+9.49 percent), Italy (+7.19 percent), and Spain (+11.54). The U.K. lagged a bit, picking up only 1.80 percent.6
Pacific Rim markets also saw solid gains, with Japan rising 8.52 percent. Hong Kong was the performance outlier, falling 1.65 percent as China continued to struggle.7
Gross Domestic Product (GDP)
The second estimate of economic growth in the third quarter was revised higher, from 4.9 percent to 5.2 percent.8
Employers added 150,000 jobs in October, below September’s pace of a 297,000-job gain and the consensus forecast of 170,000 new jobs. The unemployment rate ticked higher to 3.9 percent, while average hourly earnings came in around expectations.9
Consumer spending declined 0.1 percent in October, coming off a 0.9 percent increase in September. This was the first decline in retail sales since March. Year over year, retail sales rose 2.5 percent, below the level of price increases for that period.10
Industrial output fell 0.6 percent, owing in large part to the strike by automotive workers. The decline was greater than the 0.4 percent that economists had been expecting.11
Housing starts rose 1.9 percent in October as builders took advantage of the ongoing shortage of existing homes’ resale inventory.12
Sales of existing homes declined by 4.1 percent month over month to a 13-year low, while sales from a year ago were down by 14.6 percent. The year-over-year gain in the median sales price was 3.4 percent due to the low inventory of homes on the market.13
New home sales fell 5.6 percent in October, though they were higher from a year ago by 17.7 percent.14
Consumer Price Index (CPI)
Consumer prices were flat in October and were higher by 3.2 percent from a year ago. Both numbers came in below Wall Street expectations. Core CPI, which excludes food and energy, also posted below-forecast results, rising 0.2 percent in October and 4.0 percent year over year. The annual Core CPI increase was the lowest in two years.15
Durable Goods Orders
Orders of goods designed to last three years or longer slumped 5.4 percent in October, led by a sharp decline in aircraft and automobile orders.16
The FOMC elected to leave rates unchanged for the second consecutive meeting. The committee’s accompanying statement pointed to an improved assessment of the economy.
In his post-announcement press conference, Fed Chair Jerome Powell said that bringing inflation to the Fed’s two percent target was a long process, leaving open the possibility of a rate hike in December.17
By the Numbers: The Holidays
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, or state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
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The forecasts or forward-looking statements are based on assumptions, subject to revision without notice, and may not materialize.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. The S&P 500 Composite Index is an unmanaged group of securities considered to be representative of the stock market in general. The Nasdaq Composite is an index of the common stocks and similar securities listed on the Nasdaq stock market and considered a broad indicator of the performance of stocks of technology and growth companies. The Russell 1000 Index is an index that measures the performance of the highest-ranking 1,000 stocks in the Russell 3000 Index, which is comprised of 3,000 of the largest U.S. stocks. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark for the performance in major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
The Hang Seng Index is a benchmark index for the blue-chip stocks traded on the Hong Kong Stock Exchange. The KOSPI is an index of all stocks traded on the Korean Stock Exchange. The Nikkei 225 is a stock market index for the Tokyo Stock Exchange. The SENSEX is a stock market index of 30 companies listed on the Bombay Stock Exchange. The Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange. The Bovespa Index tracks 50 stocks traded on the Sao Paulo Stock, Mercantile, & Futures Exchange. The IPC Index measures the companies listed on the Mexican Stock Exchange. The MERVAL tracks the performance of large companies based in Argentina. The ASX 200 Index is an index of stocks listed on the Australian Securities Exchange. The DAX is a market index consisting of the 30 German companies trading on the Frankfurt Stock Exchange. The CAC 40 is a benchmark for the 40 most significant companies on the French Stock Market Exchange. The Dow Jones Russia Index measures the performance of leading Russian Global Depositary Receipts (GDRs) that trade on the London Stock Exchange. The FTSE 100 Index is an index of the 100 companies with the highest market capitalization listed on the London Stock Exchange.
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