Weekly Market Update

Jerome Powell and the Federal Reserve provided additional fuel for the recent "everything" market rally as the S&P 500 was up for the seventh straight week and is now up 23% in 2023. Importantly, the rally is beginning to broaden beyond the Magnificent seven mega-cap tech stocks; the Russell 2000 Index (an index of small-cap stocks) has generated a return of 11% over the last month while the Magnificent seven are up just 1.4% over the same time period. Further, bonds joined in on the rally as well with the 10-year Treasury rate falling below 4% for the first time since July (bond prices move inversely to interest rates). (Source: The Wall Street Journal)

The U.S. job market added 199,000 jobs in November, an improvement from October's 150,000 new jobs but below the 2023 monthly average. Overall, investors responded favorably to the news as all three major U.S. equity indices closed at their highest level of the year on Friday to notch a sixth straight week of gains. The slowing but still healthy labor market is supportive of the economic "soft landing" narrative, defined as an economic slowdown that avoids a recession. The unemployment rate ticked down from 3.9% to 3.7% and average hourly earnings grew 4% year-over-year. (Source: The Wall Street Journal)

Financial markets experienced a historically strong November as the S&P 500 Index returning 8.9% for the month, the second-best November return dating back to 1980. Big tech led the way, reinstating the trend from the first half of 2023 and rebounding from a challenging third quarter. The S&P 500 is now up 19.7% on the year heading into December. The bond market rallied as well, with the 10-Year Treasury yield ending the week at 4.22%, down from a recent high of nearly 5% (bond prices move inversely to interest rates). (Source: John Hancock)

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)

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)