STOCKS ADVANCE FOR 6TH WEEK IN A ROW AS EMPLOYMENT NUMBERS AND WAGE GROWTH SUPPORT THE NOTION OF A SOFT LANDING

Weekly Market Update — December 9, 2023

• This week saw the major equity indices advance, but the gains were much more modest relative to the previous five weeks
• Small-caps outpaced the large- and mega-caps, as the small-cap Russell 2000 added +1.0% versus the +0.2% gain for the large-cap S&P 500 – which did hit a 52-week high – and the flat DJIA (+0.0%)
• The tech names did decently, as NASDAQ advanced +0.7% on its way to a staggering YTD gain of +37.6%
• Of the 11 S&P 500 sectors, six advanced, led by Communication Services (+ 1.4%) and Consumer Discretionary (+1.1%)
• Of the five that declined, Energy was hit the hardest, as it dropped 3.5% as the price of oil fell to $71.18/barrel
• Interestingly, WTC Crude prices have dropped for 7 weeks in a row
• There was a lot of economic data this week, much of it related to the labor market, including the October JOLTS Report which showed the lowest number of job openings since March 2021
• The ISM Non-Manufacturing Index for November rose to 52.7% from 51.8% and the University of Michigan Index of Consumer Sentiment for December was much stronger than forecasted
• Accordingly, the fed funds futures market is no longer pricing in a rate cut in March and instead is predicting one a couple of months later in May and five in 2024
• The 2-year Treasury yield climbed 18 basis points to 4.74% and the 10-year Treasury rose two basis points to 4.23%

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Stocks Advance for 6th Week in a Row

Wall Street and Main Street endured choppy markets this week, coming ever-so-close to all time peaks, after a slew of employment data gave more support that the Fed might have pulled off a “soft-landing” of the economy after all.

Of all the employment data this week, it was the Labor Department’s report on Friday that showed nonfarm payrolls increasing by 199,000 jobs in November that seemed to most solidify these soft-landing hopes.

Yes, the number of nonfarm payroll jobs was higher than expected, pushing the unemployment rate down slightly to 3.7%, but average earnings inched up to 0.4% on a monthly basis, which was more than forecasted.

Accordingly, Wall Street is very much expecting the Fed to hold the fed funds rate the same next week and the odds for when the Fed would begin cutting rates have shifted from March to May.

Earnings Surprises

Research firm Factset compiled recent corporate earnings metrics, including that for Q3 2023, 82% of S&P 500 companies reported a positive EPS surprise and 62% of S&P 500 companies have reported a positive revenue surprise (with more than 99% of S&P 500 companies having reported actual results).

In addition:

• For Q4 2023, the estimated (year-over-year) earnings growth rate for the S&P 500 is 2.7%. If 2.7% is the actual growth rate for the quarter, it will mark the second straight quarter of year-over-year earnings growth for the index.
• On September 30, the estimated (year-over-year) earnings growth rate for the S&P 500 for Q4 2023 was 8.1%. Nine sectors are expected to report lower earnings today (compared to September 30) due to downward revisions to EPS estimates.
• The forward 12-month P/E ratio for the S&P 500 is 18.8. This P/E ratio is equal to the 5-year average (18.8) but above the 10-year average (17.6).

Economic Data

Besides a ton of economic data covering the labor market, Wall Street also digested the following:

• Factory orders fell 3.6% month-over-month in October after increasing 2.3% in September.
• Excluding transportation, factory orders fell 1.2% after increasing 0.4% in September.

• Shipments of manufactured goods were down 1.4% in September.
• Durable goods orders fell 5.4% month-over-month after jumping 4.0% in September.
• New orders for nondurable goods were down 1.9% after increasing 0.6% in September.
• New orders for nondefense capital goods excluding aircraft — a proxy for business spending — were down 0.3% after decreasing 0.2% in September.
• The inventory-to-shipments ratio rose to 1.48 from 1.46.

• The October Trade Balance Report showed a widening in the deficit to -$64.3 billion in September.
• The widening was the result of exports being $2.6 billion less than September exports and imports being $0.5 billion more than September imports.

• Consumer goods exports decreased $2.1 billion.
• Automotive vehicles, parts, and engines exports decreased $0.9 billion.
• Industrial supplies and materials exports increased $1.2 billion.
• Capital goods imports increased $1.8 billion.
• Automotive vehicles, parts, and engines imports decreased $1.0 billion.
• The real goods deficit increased $0.7 billion to $87.0 billion. That was 1.1% more than the Q3 average.

• The ISM Non-Manufacturing Index increased to 52.7% in November from 51.8% in October.
• The dividing line between expansion and contraction is 50.0%, so the November reading shows that services sector activity is expanding at a faster pace versus October.
• November marked the eleventh consecutive month of growth for the services sector.

• Consumer credit increased by $5.2b in October.
• Revolving credit increased by $2.8b in October to $1.295 trillion.
• Nonrevolving credit increased by $2.2b to $3.694 trillion.
• Consumer credit increased at a seasonally adjusted annual rate of 1.2% in October. Revolving credit increased at an annual rate of

Number of U.S. Job Openings Fell to 8.7 Million, Fewest Since March 2021

The number of job openings decreased to 8.7 million on the last business day of October, the U.S. Bureau of Labor Statistics reported. Over the month, the number of hires and total separations changed little at 5.9 million and 5.6 million, respectively. Within separations, quits (3.6 million) and layoffs and discharges (1.6 million) changed little.

This release includes estimates of the number and rate of job openings, hires, and separations for the total nonfarm sector, by industry, and by establishment size.

Job Openings

On the last business day of October, the number of job openings decreased to 8.7 million. The job openings rate, at 5.3%, decreased by 0.3% over the month and 1.1 points over the year. Over the month, job openings decreased in health care/social assistance (-236,000), finance and insurance (-168,000), and real estate and rental and leasing (-49,000). Job openings increased in information (+39,000).

cmegroup.com; bls.gov; ismworld.org ; msci.com; fidelity.com; nasdaq.com; wsj.com; morningstar.com;

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