November 13, 2023

“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.”

Jack Bogle
Founder Vanguard Funds

Happy Veterans Day, to all our Veterans we offer our profound thanks and appreciation for all they have done to secure this country, so we are free to go about our lives as we choose.

Well, it appears Rudolf’s red nose is guiding the markets back from the past few months. Last week we built on the gains made last week with only a slight bump. Here are the numbers: The S&P 500 gained for the week another 1.17% the Dow Jones Industrial Average added .56% and the Nasdaq was up 2.06%, Internationally the FTSE 100 lost .77% and the MSCI-EAFE ended almost where it began off .05%. The 2-year Treasuries yield closed Friday at 5.069% and the 10-year yielded 4.646%.

So, despite a remark which temporarily spooked the market Wednesday last week, then a clarification from Chairman Powell, the markets continued it upward momentum.

All 11 sectors gained ground the previous week and continued their winning ways last week, many enjoying their best week in nearly a year. Looking at expected retail numbers as the Christmas shopping season arrives (it seems earlier and earlier every year), considering three years of economic upheaval that have driven up prices and consumer resentment, consumer spending could be worse. When the nation’s biggest retail chains report this week — Walmart Inc., Target Corp. and Macy’s Inc. are among them — executives could help further dissect what has been called the “bad vibes” economy, as the holidays approach, Wall Street remains skeptical and signals across the retail industry remain mixed. Lower-income consumers have been hit harder by rising prices for basics. And those higher prices overall have made customers more selective when they spend on things they want rather than things they need. Higher energy prices and borrowing costs, as well as stricter credit conditions and the return of student-loan payments, have also posed threats to demand. (MarketWatch)

UBS analysts, in a research note on Thursday, said that within so-called soft lines retail — that is, things like clothes — retailers were still cutting prices in an effort to clear items that shoppers don’t want.

The big news this week will be tomorrow’s U.S. inflation data for October. It is clearly the economic highlight for markets, economists and policymakers this week. That’s because, if price pressures continue their cooling trend from the summer, the Fed might be able to refrain from any more interest-rate hikes. The October CPI report could emerge as a critical catalyst for stocks, with the potential to propel the market higher on a softer-than-expected number. “I would not be surprised to see a negative CPI inflation print for October,” said Neil Dutta, head of economics at Renaissance Macro Research, in commentary emailed to MarketWatch. “After all, retail gasoline and heating oil prices declined a little over 10% over the month and we know that energy, while representing a small share of total CPI, roughly 7%, can account for a large chunk of the month-to-month swings in CPI.”

Over the past year, inflation is expected to rise at a 3.3% rate, down from 3.7% in the prior month. The improvement is expected to come mainly from gasoline prices. Core CPI, excluding volatile food and energy prices, is expected to rise 0.3%, matching a 0.3% gain in the prior month. The year-over-year rate is seen holding steady at a 4.1% annual rate.

To be sure, the CPI report isn’t the only piece of potentially market-moving news due during this week. Investors will also receive a monthly update from the Treasury that includes data on foreign purchases and sales of Treasury bonds, as well as a flurry of other economic reports, including potentially market-moving readings on housing-market and manufacturing activity.

As for the Federal Reserve: speaking on Thursday, Federal Reserve Chairman Jerome Powell left the door open to another move but qualified this — as the Fed almost always has — by insisting that whatever the Fed decides, it will ultimately depend on the data. Even a slightly hotter-than-expected number likely wouldn’t be enough to derail the market’s November rebound rally. While a soft reading could reinforce expectations that the Fed is done hiking rates, likely precipitating a rally in both stocks and bonds. There is also the producer-price index, another closely watched barometer of inflation, which is due this week.

Muddying the waters further is Lawmakers return to Capitol Hill today, with just days left to pass a stopgap funding measure that will keep the government from shutting down on Friday. House Republicans unveiled a stopgap plan for funding the federal government on Saturday, giving Congress just under a week to pass legislation that would avert a shutdown.

Other points of concern? The bond market continues to send a more pessimistic signal about the future than stocks, in the form of an inverted yield curve—a classic recession indicator. There’s no shortage of potentially negative geopolitical wildcards out there either.

All in all, we believe we still can salvage this year, mainly by being defensive, taking advantage of high short-term rates, moving in to some carefully chosen bonds as the bond market emerges from its bear market and getting a little help with the well-timed rally. Will it last? Indications are it looks good.

Mike