Something More to Be Thankful For?

11/27/2023

I hope your Thanksgiving holiday was warm, safe, and bountiful. My wife and I were touched by the kindness of strangers over the holiday, especially the South Carolina State Patrolman who stopped us for traveling 66 mph in a 55 mph zone. We were thankful he issued a warning and hopeful his gesture was a sign of positive things to come for the remainder of the year.

2023 is rapidly approaching its end, just like our Subaru Outback. There are only 23 trading days left in this year. Here’s where things stand as we start the week: according to Franklin Templeton/MacroBond Financial AB, the S&P 500 is up 20.5% year-to-date and just 5.2% below its all-time-high reached on January 3, 2022. The tech-heavy Nasdaq is up 37.2% so far this year and 12.7% below its all-time-high reached in November 2021. Broadly speaking, momentum has been up and to the right.

There are several important data points on the horizon as we finish out the year. Later this week, we will get an update on the Fed’s preferred inflation gauge: core personal consumption expenditures. There is one more employment report due out on Thursday, Nov 30, and a final Consumer Price Index release on Tuesday, Dec 12. These data points will be followed by the Fed’s December meeting and rate decision on Wednesday, Dec 13.

According to the CME FedWatch tool, there is a 97% chance the Fed will keep rates steady at the December meeting. Things get more interesting when we look forward a bit. Markets are expecting the Fed to cut rates at least four times in 2024 for a full percentage point decrease from present levels. Meanwhile, minutes from the Fed’s last meeting show members were unanimous in their view that monetary policy should remain restrictive “for some time” until inflation is clearly moving toward their 2% goal. There was no mention of any rate cut contemplation.   

The Fed has repeatedly stressed its future policy decisions will be “data dependent.” Therefore, the forward path of rates will depend on the Fed’s interpretation of the incoming data. My sense is the inflation numbers have been more volatile this cycle than in most previous cycles. Covid-related forces, both up and down, have had a greater and more unpredictable impact than we would have expected in a more run-of-the-mill cycle. You can be sure we too, will be watching the data flow with great interest.

Even though past performance is not indicative of the future, investor sentiment tends to follow the market. With the recent robust performance of stocks, especially U.S. based mega-cap growth stocks, it is not surprising to see an abundance of optimism. Let’s hope the arriving data supports the prevailing mood. That might be something more to be thankful for.

Mike Masters