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November Market Report

December 04, 2023

Hello and welcome to my November Market and Economic Report. My name is Remy Jacobson. I am Vice President of Jacobson Wealth Management. In this update, we are looking at the month of November and the positive developments that have taken place. Your feedback and questions are highly encouraged.

The Basics

  • Inflation Overview: In the latest Consumer Price Index (CPI) report, there was a 0% change month-over-month. It's important to note that this does not equate to a lack of inflation overall. Higher prices in certain sectors were largely balanced by a notable drop in oil prices.
  • The Federal Reserve Update: The recent CPI data strongly suggests that the Federal Reserve will maintain steady interest rates in their forthcoming meeting. Unofficially, this could signal the end of their series of rate hikes.
  • Market’s Response: The possibility of no further interest rate hikes has energized the markets. Both the stock and bond markets have experienced significant recoveries in November.
  • Interest Rate Outlook: There's a growing belief in the markets that interest rates may start declining in the first half of 2024. This scenario, while potentially beneficial for markets, could indicate economic challenges.

 
Inflation
October’s Consumer Price Index (CPI) report showed no change (0%) from the previous month and only a 0.2% increase excluding food and energy (Core CPI). This contrasts sharply with September's inflation of 0.4% and 0.3%, respectively. The major factor here is the decline in energy prices since late September. Additionally, the continued downturn in energy costs offers hope for moderate inflation in November, with new data expected on December 12th. However, it’s prudent to recall that a similar pattern occurred in July 2022, when a 0% CPI was followed by a subsequent rise, despite declining energy costs. While a return to high inflation rates seems unlikely, particularly without a resurgence in energy costs, we must remain vigilant.
 
The Federal Reserve
The Federal Reserve is likely to keep interest rates unchanged at the December 13th Federal Open Market Committee (FOMC) meeting. This move, which the Fed won’t explicitly confirm, might mark the end of their rate-hiking phase. Market projections from the CME Group indicate a 44% chance of a rate cut by March 2024, increasing to 75% by May. 
 
The Market’s Reaction
Both the stock and bond markets have welcomed this potential shift in policy. The S&P 500 rallied by nearly 8% in November, and the yield on the 10-year treasury note has fallen sharply from 4.9% to 4.3%, indicating more buying activity than selling, in both markets.
 
Interest Rate Outlook
It’s crucial to understand the implications of the market forecasting a decrease in short-term interest rates. A rate cut by the Federal Reserve isn’t a casual decision; it’s a tool used to stimulate growth during economic downturns. Thus, the market’s anticipation of rate cuts in early 2024 implies the anticipation of a recession for the broader economy.
 
My Perspective
I am going to sound like a broken record saying this, but my view remains firm: the economy is likely to continue its gradual slowdown in the coming months, potentially leading to stagnation or negative growth. If this is the case, interest rates may come down, however I believe that the Federal Reserve will be stubborn to lower interest rates in order to regain credibility with markets. Despite the prospect of economic hardship in 2024, the apparent peaking of interest rates could attract new investors, laying the groundwork for future economic recovery.

Thank you for reading. I hope you enjoyed and am wishing you a wonderful holiday season.
 

Statements of future expectations are based on current market conditions, and involve uncertainties that could cause actual results to substantially differ from those expressed. This commentary is for informational purposes only and should not be construed as specific advice.