U.S. markets were on the quiet side last week in a holiday-shortened trading schedule, with the S&P 500 closing out its best four-week stretch of gains in a year.
Federal Reserve Minutes: No Hints of Cuts
According to the most recent Federal Reserve (Fed) meeting minutes, Fed officials don•t seem so gung-ho about cutting interest rates anytime soon, despite the market•s wishes.
Members appear to be concerned that inflation could be sticky or even move higher and that more work may need to be done.
•In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee•s 2 percent objective over time,• the minutes said.
To put this in •non-Fedspeak• context, the most recent Consumer Price Index data showed inflation running at an increase of 3.2%, and the Fed•s job is to get this number down to 2%. As such, there is still work to be done.
Overall, major U.S. equity markets have been calm in November. The index that tracks market expectations of volatility in the short-term declined for the fifth straight week last week, indicating little fear was present in the S&P 500 as of market close.
In fact, last week, this index, the $VIX, closed at levels not seen since January 2020 on a weekly closing basis.
Things change quickly! Rewind to October, and the $VIX was nearly 84% higher at its monthly high than last week's closing level.
Presumably, some investors were •shaken out• by the volatility, fear, and headlines featured in October and missed out on the subsequent gains in recent weeks. Investing for the long term reduces the risk of such happenings!
Home Sales Drop in October
Existing home sales dropped 14.6% in October versus the year prior, a 13-year low.
Let•s remember that October coincided with 10-year note yields flirting with 5% (and consequently higher interest rates), so a slowdown in existing home sales can•t be too surprising. Interest rates have retreated somewhat in November.
•Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation,• said Lawrence Yun, the National Association of Realtors• chief economist.
November could show some improvement in residential real estate activity, with 30-year fixed mortgage rates decreasing from October levels and recent signs of inventory inching higher.
Holiday Shopping Outlook
Early indications were that the consumer may have a soft holiday shopping season.
But on Black Friday, the Teflon Consumer struck again, with shoppers spending a record $9.8 billion in online sales. This number was up 7.5% from last year • wow!
What brick-and-mortar sales look like once the totals have been tallied is yet to be seen. Some folks note that inflation-pinched shoppers are holding out for deeper discounts, but you wouldn•t know that from the online sales data that is available so far.
Since the next jobs report is not due out until December 8th, the big economic report of this week will be the preliminary U.S. gross domestic product (GDP) growth (quarter over quarter) data on Wednesday.
We will also get the Fed•s favorite inflation metric in Core Personal Consumption Expenditures (PCE) on Thursday.
Throughout November, major U.S. equity indexes have exhibited continued strength after a dismal October. We will all be looking to see how the month closes out this week as we approach the final month of 2023.