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November 27, 2023

“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”

Warren Buffett.


Stocks ended mostly higher in a relatively quiet and thin, abbreviated trading session Friday, with major indexes scoring a fourth straight weekly rise. Trading closed at 1 p.m. For the week the S&P 500 gained 1.1%, the Dow Jones Industrial Average added 1.22%, the Nasdaq finished the week up 1.07%, overseas, the FTSE-100 was off slightly -.21%, and the MSCI-EAFE gained .085%. The two-Year Treasury yield finished at 4.955% and the 10-year was 4.472%.

Next year brings a host of unanswered questions, but that’s a problem for another day. In the near term, what’s not to like? The typical year-end Santa Claus rally began before Thanksgiving. In fact, the S&P 500 has just had its best three-week stretch since June 2020.  If historical patterns hold, the S&P 500 should have a jolly end to the year and start of 2024.


Stocks’ “positive momentum continues, and unless there are pointed problems with holiday spending, should be self-fulfilling into the year end,” Louis Navellier, chairman and founder of Navellier & Associates, wrote in emailed comments before Thanksgiving.

Well, it looks like the shopping holiday is back in full force. Americans opened their wallets on Thanksgiving, doing a record amount of shopping on the annual day of giving thanks. Consumers spent an all-time high of $5.6 billion shopping online on Nov. 23, up 5.5% compared with last year’s Thanksgiving, according to Adobe Analytics, consumers got a head start online. In the U.S., web traffic to retailers rose 6% year over year on Thanksgiving Thursday, according to Salesforce data.  As of midday Friday, online sales were up 5% compared with last year, according to data from Signifyd. Signifyd provides fraud protection to e-commerce merchants. Remember, consumer spending is one of the biggest single factors that drive Gross Domestic Product (GDP) number. Inflation appears to be moderating and markets seem convinced that the Federal Reserve is done tightening monetary policy for this cycle. Bond yields remain elevated but have arrested their upward trajectory. The economic data continues to point to a soft-landing scenario. Even Congress managed to get its act together last week, delaying a potential government shutdown until 2024.

Thanksgiving may be over, but investors still have reason to be thankful—a Santa Claus rally is set and in its early stages.

Other signs of good things to come?  I have commented many times in the past about the inverted yield curve, when arguing for an expected recession, Now, the yield curve inversion appears to have stopped narrowing, and that’s not necessarily a bad thing.

The gap between the two-year government bond yield and the 10-year bond yield now stands at about 0.47 percentage point. It had become as small as 0.15 point a month ago, having steadily narrowed since the end of July as investors digested the Federal Reserve’s higher-for-longer message on interest rates. The biggest gap was back in March, when it exceeded a whole percentage point.

At the risk of being too technical, the inversion—when the two-year yield is higher than the 10-year yield—has inspired forecasts for a recession since it last started in July 2022. There’s often a correlation between a yield inversion and an economic slump, because it reflects an anticipation of lower Fed rates in the future. As Market Watch asks, what’s been going on? Bond yields are basically investors’ expectations for future inflation and Fed interest rates. Roughly speaking, the higher the expectations for inflation or Fed rates, the higher the yield. Usually, longer-term bonds have higher yields because investors demand bigger returns when they’re lending money for a bigger duration of time.

Any bad news?

The final reading of the sentiment survey edged up to 61.3 from 60.4 in early November, the University of Michigan said Wednesday. Still, the index has fallen four months in a row to a six-month low.

Yet even though inflation is slowing, prices of goods and services are up 18% compared to three years ago. And now higher borrowing costs are adding to the economic stress.

Investors have been waiting for central banks to start cutting interest rates since the Federal Reserve delivered its first rate hike of the cycle in March 2022.

The big takeaway from the latest Fed minutes is that policy makers universally back the “higher-for-longer” stance, and they expect to be in a holding pattern to fully assess the lagged effects of tighter monetary policy. “All participants judged that it would be appropriate for policy to remain at a restrictive stance for some time until inflation is clearly moving down sustainably toward the Committee’s objective,” the minutes read. Fed officials gave no indication at the meeting that they were considering rate cuts. Instead, they continue to see risks to achieving their inflation target and even noted that further tightening could be “appropriate” if future data showed insufficient progress.

Now, it looks like it is finally happening: Overseas, for the first time since January 2021, the number of central banks cutting interest rates has surpassed the number hiking them, according to an analysis from Deutsche Bank’s Jim Reid. But will the Federal Reserve follow suit? Still no indication that Chairman Powell is disposed to begin cutting rates anytime soon.

One of the biggest factors in inflation is oil prices, so when the meeting of the Organization of the Petroleum Exporting Countries and its allies — together known as OPEC+ — initially scheduled for Sunday, has been delayed to Nov. 30, OPEC said Wednesday. Bloomberg reported that the delay came as talks stalled due to Saudi Arabia’s dissatisfaction with production levels by other members. Saudi Arabia in July implemented an additional, voluntary cut of 1 million barrels a day, which it has extended through the end of this year. The meeting is now set to take place Nov. 30, CNBC reported. For now, oil prices have dropped.

In other economic news, the number of unadjusted unemployment claims topped 200,000 for the third week in a row and touched the highest level since July at 238,677. They had totaled less than 200,000 a month from August until the end of October. New jobless claims also rose in 39 states and territories that report these figures to the federal government. They fell in just 14 other states.

Consumer sentiment improved slightly near the end of November, but Americans are more worried about the economy and think inflation is far from defeated.

In the United Kingdom, Chancellor Jeremy Hunt has outlined a plan to lift what’s called the national living wage by nearly 10%, from £10.42 to £11.44 ($14.35). He called that the biggest increase in more than a decade. The minimum wage applies in the U.K. to those over the age of 23, though when the new rate goes into effect in April it also will apply to 21- and 22-year-olds. The average wage for all workers in the U.S. was $34 per hour in October. Any wonder the FSTE 100 has had its problems recently?

Other good news, such as it is…

The stock market seems to have some real momentum behind it, momentum that could turn a Thanksgiving upturn into a full-blown end-of-year rally. Part of this is just simple seasonality: Since 1950, the S&P 500 has risen 70% of the time from Thanksgiving through New Year’s Eve, for an average gain of 1.7%.

But there’s more to a potential rally than purely technical matters. Said, Jessica Rabe, co-founder of DataTrek Research.  Also, if the Federal Reserve is done raising rates, that could provide positive support to minimize the recession risk or at least allow for a soft landing. The question is whether the Federal Reserve is at the end of its tightening cycle. The central bank last raised interest rates in July, and the market is coming around to the idea that it was the last increase of this rate-hiking campaign. That has generally been good news for the S&P 500, which has gained 17% on average in the year after the last increase in cycles ended in 1995, 2000, 2006, and 2018.

Putting lipstick on a pig…. prospective home buyers can add lower Treasury yields to their gratitude lists this Thanksgiving holiday. Mortgage rates in the past week fell to their lowest level since mid-September, continuing a slump that coaxed some home buyers off the sidelines. The average 30-year fixed mortgage rate was 7.29% this week, according to Freddie Mac‘s weekly data. That’s the lowest level since the week ended Sept. 21, and half a percentage point lower than the gauge’s recent peak at 7.79%. Anybody remember, not too long ago, 2-3% 30-year mortgage rates? But it is going in the right direction.

As previously mentioned, Oil prices pushed lower last Thursday, the in fighting by several members seems to be the reason, anyway the recent drop at the pump at least offers some good news to the average American trying to make ends meet this Christmas Season.

We sincerely hope all of you enjoyed this time with family and friends, without worrying about the market, as we move toward yearend, we still believe we have properly positioned your portfolios to benefit from what the markets are giving us this year.