Weekly Market Update

All eyes have been on the November U.S. equity market rally which experienced its fourth consecutive week of gains last week. Key macroeconomic data reported in November has also been supportive of the broader risk-on environment, starting with corporate earnings. With the third quarter earnings season nearly complete for S&P 500 companies, the year-over-year earnings growth is projected to be a robust 4.3%, marking the first quarter of year-over-year earnings growth in a year. Gross domestic product (GDP), a broad measure of economic growth, was estimated at an impressive 4.9% in the third quarter, up from 2.1% the quarter earlier. (Source: The Wall Street Journal)

Last week's economic data reinforced two key trends: inflation and consumer spending continue to moderate, providing the Federal Reserve continued justification to remain on the sideline from further rate hikes. Headline inflation (CPI) came in at 3.2% in October, down from 3.7% a year earlier, while retail sells fell modestly by -0.1%. Equity and bond markets reacted favorably, as all major equity indices gained more than 2% last week, including the S&P 500, the NASDAQ, and the Dow. Small-caps were the big winner, surging more than 5%. Within the bond market, the CPI report on Tuesday resulted in the largest daily decline in the 10-year Treasury rate in almost eight months, from 4.63% to 4.44%. (Source: The Wall Street Journal)

Equity markets continued their recent rebound last week with the S&P 500 Index now up 15% in 2023 and the tech-heavy NASDAQ index up 32% after having its best day on Friday since May. Additionally, investors have been positioning themselves for a year-end rally as hedge fund and money manager shorts against the S&P 500 are at their lowest levels since March. (Source: The Wall Street Journal)

The unemployment rate ticked up to a two-year high of 3.9%, oddly resulting in the best week of 2023 for stocks and bonds. The S&P 500 Index rallied nearly 6% for the week, while bond prices surged as yields fell to their lowest level since September (bond prices move inversely to interest rates). Notably, the 10-year Treasury yield experienced one of the largest weekly drops since the global financial crisis, ending the week at 4.52%. (Source: The Wall Street Journal)

Last week provided a friendly reminder to investors that the stock market and the economy are not one-in-the-same. On the economic front, initial third quarter gross domestic product (GDP) was reported at a robust 4.9%, more than double the previous quarter and the fastest pace since 2021. The impressive growth was supported largely by American consumers who are spending more across the board, including on cars, dining, and travel. (Source: The Wall Street Journal)

Bond yields rose sharply last week, with nearly all Treasury yields across various maturities surpassing the 5% mark before moderating later in the week. Even though Federal Reserve Chair Jerome Powell indicated a pause in rate hikes for November, bond investors are looking ahead. Last week's remarks by Powell about inflation remaining elevated and the possibility of more rate hikes if economic data remains robust led to an uptick in rates. (Source: The Wall Street Journal)

The threat of instability in the Middle East remains elevated as Israel responds to last week's Hamas invasion. On the investment front, it is yet another variable in an already convoluted economic backdrop of elevated interest rates, stubborn inflation, and the ongoing Russia/Ukraine conflict. Investors flocked-to-safety last week as government bonds, the U.S. dollar, and gold all rallied. The demand for Treasuries provided some relief from the recent spike in interest rates, with the 10-Year Treasury yield settling at 4.63% to end the week. Additionally, oil jumped 4% on concerns of global supply shock, but has since given back some of those gains. (Source: Edward Jones)

Israel has declared war on Hamas after a surprise attack on Saturday was carried out by Hamas militants from the Gaza strip, killing at least 700 Israeli soldiers and civilians. The attacks flew under the radar of Israeli intelligence, leaving Israel and their allies scrambling for answers as the coordinated attacks pierced through major checkpoints between Israel and the Gaza strip. Israel responded Sunday by killing over 400 in Gaza, with Israeli Prime Minister Benjamin Netanyahu saying his country is "embarking on a long and difficult war". It was reported that Iran helped Hamas plot the attacks on Israel. (Source: The Wall Street Journal, Associated Press)

Congress struck a deal on Saturday to avoid a government shutdown that would have gone into effect as the clock struck midnight, securing funding through mid-November. Concessions were made on both sides as House speaker Kevin McCarthy ultimately broke with his conservative wing to move forward without strict new border policies in the legislation, while democrats sacrificed $6 billion in aid for Kyiv. Republicans insist any new funding for Ukraine, which Democrats vow to pursue in a supplemental bill in the coming weeks, must be tied to new border policies and funding. (Source: The Wall Street Journal)

The price of oil quietly eclipsed $90 per barrel last week for the first time since last November. As a result, energy prices have been driving inflation modestly higher as August's Consumer Price Index (CPI) rose at an annual rate of 3.7% in August and 0.6% on a month-to-month basis, the fastest pace since mid-2022. Excluding volatile energy and food prices, core inflation rose at a more modest 0.3% on a month-to-month basis. The Federal Reserve is widely expected to keep rates unchanged after their two-day meeting this week that ends on Wednesday. The current target fed funds rate is set at a range between 5.25% and 5.50%. While the Fed is likely to pause, the European union's inflation battle rages on after the European Central Bank lifted interest rates for the tenth consecutive policy meeting, bringing key rates to their highest level since 1999.