November Market Highlights The FOMC committee voted unanimously to leave the target range for the fed funds rate unchanged at 5.25-5.50% and Fed Chair Powell's press conference was deemed less-hawkish than feared. Mr. Powell noted that the Fed has come very far with its rate-hike cycle and that policy decisions have gotten more two-sided. The sharp drop-in rates acted as a springboard for stocks, aided by short-covering activity and a fear of missing out on further gains in a seasonally strong period for the market. Last week brought the S&P 500 into technical correction territory, but this week's rally brought the S&P 500 back above both its 200-day and 50-day moving averages. New economic data and the Fed’s latest policy decision gave investors hope that the economy is pulling back enough for inflation to abate without falling into a recession—and that interest rates could be near their peak. The pullback in bond yields alleviated a pressure point for stocks. Higher yields make borrowing more expensive for companies and households. Elevated rates also make stocks look less attractive because they represent an essentially risk-free return, raising the bar for riskier assets such as equities. Employers added 150,000 jobs in October, half the prior month’s gain and the smallest monthly increase since June, the Labor Department said Friday. The unemployment rate rose to 3.9%, up a half-point since April, and wage growth slowed. Historically speaking, November is the best-performing month for the S&P 500, according to the Stock Traders’ Almanac, and many are hoping for a broader-based advance in equities following three straight months of declines. Stocks have had a wild ride in recent months—but it’s nothing compared with what has happened in bonds. From 3.95% at the end of June, the 10-year U.S. Treasury yield surged to nearly 5% by mid-October, a payout level not seen in 16 years. Buyers swooped in—it’s a nice round number, after all—and by Nov. 3, the yield had dropped to 4.52%. The stock market followed along. The S&P 500 index fell 10% from the end of July through late October, and has since risen 7.5%. It’s a potential preview of what’s to come. The federal government ran a deficit of $1.7 trillion in its fiscal 2023, which ended in September, more than its entire debt load in 1985. Heavy borrowing means lots of Treasury issuance, just as the two biggest buyers of the past decade are largely out of the market—the Fed is doing quantitative tightening, and China has other issues. Turns out, demand for Treasuries isn’t limitless. Moody’s Investors Service on Friday lowered its ratings outlook on the United States’ government to negative from stable, pointing to rising risks to the nation’s fiscal strength. For the Federal Reserve, the most important indicator is inflation. The news there has been encouraging as well. The metric that the Fed uses as its benchmark—the deflator for personal consumption expenditures less food and energy (core PCE) has slowed to a 3.7% year/year pace. That is still far from the Fed's 2% target, but it is consistent with its forecast for year-end inflation in 2023. The CPI reading was that good. The headline number was little changed from the month before, while core CPI, which excludes volatile food and energy, rose 0.2%, below expectations for 0.3%. Together, it was one more sign that the Fed is winning the battle against inflation. If the economy grows, so can corporate sales. Analysts expect revenue at S&P 500 companies to grow at a 5.1% annual rate over the next couple of years, per FactSet. Stocks have been boosted by a strong earnings season. With most S&P 500 companies now having reported third-quarter results, more than 80% have beaten analyst expectations, according to LSEG, the highest rate since the second quarter of 2021. Consumers cut their spending at stores, dealerships and gas stations last month, tapping the brakes on economic growth ahead of the holiday shopping season. The Federal Reserve has raised interest rates this year to a 22-year high to combat inflation by slowing economic activity. They last raised them in July. Since then, officials have extended a pause in rate increases, and recent data likely eliminate the possibility of further hikes. Americans spent lavishly over the summer, including on concerts, travel and expensive gasoline. That propelled the economy to accelerate to near a 5% growth rate. Now, there are signs of a sharp slowing. Borrowing costs for mortgages, car loans and credit-card balances have climbed this year. Slower wage growth and declining confidence about job prospects could leave consumers less likely to splurge on a vacation or a new television. And Americans have spent much of the savings they accumulated early in the pandemic. Early Black Friday discounts were far higher this October compared to prior years, signaling retailers are concerned that demand could be tepid during the crucial holiday shopping season. The stock market seems to have some real momentum behind it, momentum that could turn a Thanksgiving upturn into a full-blown end-of-year rally. Part of this is just simple seasonality: Since 1950, the S&P 500 has risen 70% of the time from Thanksgiving through New Year’s Eve, for an average gain of 1.7%. It isn’t just the end of rate hikes that bodes well for the market—it’s also the possibility that cuts will start soon. There’s a 25% chance that the Fed will cut rates by its March 2024 meeting, with greater than 50% odds that rates fall by May, according to the CME FedWatch Tool. That’s right in line with what has happened in the past: The central bank has started lowering rates nine months after its final hike on average, which would put this one at the policy meeting that ends on May 1. Studies of 13 bull markets that have occurred since the end of World War II reveal on average, the S&P 500 gained 164% during these 13 periods, which averaged 57 months in duration. The recent bull markets have generated higher returns over longer periods of time. On average, the five bull markets since 1980 have seen stocks advance about 240% over a period of 70 months. And the bull market prior to the pandemic carried on for 11 years and stocks rose 500%. Many other consumers got a head start online. In the U.S., web traffic to retailers rose 6% year over year on Thanksgiving Thursday, according to Salesforce data. Meanwhile, Adobe estimated that consumers spent a record $5.6 billion online on Thanksgiving Day, up 5.5% year over year and nearly double the amount that people spent online in 2017. Investors have reason to be bullish this month. The major averages have rallied after cooler inflation reports appeared to confirm the Federal Reserve is done hiking, buoying hopes it can start cutting next year. *This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. | 
