November Consumer Spending May Signal Brighter Holiday Season

As the year’s final month, December brings holiday gatherings and hopefulness for brighter days ahead in 2023. Looking back at how the economy performed in November, we saw lighter holiday-week trading at Thanksgiving time, with stocks rallying as investors grew more hopeful for a slowdown in future rate hikes. The release of the minutes from the early November meeting of the Federal Open Market Committee (FOMC) fueled investors’ optimism.  

Fed officials suggested such easing may be coming soon. Investor sentiment was also lifted by unexpectedly strong retailer earnings, plus upside surprises in new economic data, and a better-than-expected consumer sentiment reading. Investors looked past the continuing Covid-related challenges that have hampered China’s economic recovery and its attendant implications for global growth. 

The Fed meeting minutes, released before the Thanksgiving holiday, showed that most Fed officials felt a slowing in interest rate increases would be appropriate. The minutes also suggested that such a deceleration in rate hikes may begin with December’s meeting, with a 50 basis point hike rather than a fifth-consecutive boost of 75 basis points.¹ The primary reasons for slowing the pace of rate hikes were the growing risk that the Fed may increase rates beyond what was required to reduce inflation to its two percent target, and signs that inflation pressures were easing.²

Midterm elections have (mostly) concluded, with Republicans winning enough seats in the House of Representatives to constitute a majority when the 118th Congress is seated in January. The Democrats will retain control of the Senate regardless of the outcome of the Georgia runoff. Historically, a divided congress following a midterm election, with a Democrat in the White House, is beneficial for stocks. A split government makes it harder for significant policy changes to take place, offering some stability to investors. 

Global events also continue to impact the markets. Markets reacted favorably to expectations that China is loosening its Zero Covid policy following Beijing’s announcement this week that they are speeding up the rate of Covid injections to the elderly. Accordingly, the Hang Seng Index had its best monthly performance (+27.3%) in 24 years. If China’s Zero Covid starts to soften, this should help reduce global inflation once supply chain issues start to ease.

As always, we’re here to help. Just give us a call if you have concerns about current economic conditions or need to chat about changes in your situation. We wish you the happiest of holidays! 

^{1. & 2. The Wall Street Journal, November 23, 2022}

Stocks

Stocks continued to surge higher in November, supported by strong consumer spending (which accounts for 70% of economic activity). According to the Washington post, “Shoppers spent big over a record-breaking five-day holiday shopping weekend, shelling out more than ever on the year’s premier online shopping day. Consumers spent $35.4 billion online over the five-day period, according to data from Adobe Analytics. On Cyber Monday — the biggest shopping day of the long weekend — sales hit a record $11.3 billion, a 5.8 percent jump from last year, while online Black Friday sales ticked up 2.3 percent to $9.12 billion.” As a result of strong spending all year, earnings have come in better than expected for companies, which have helped to propel stocks higher over the past month.ⁱ

^{i. https://www.washingtonpost.com/business/2022/11/29/shoppers-broke-records-this-holiday-weekend-inflation-took-its-toll/}

Sector Performance

All 11 sectors finished the month higher, continuing the trend we saw in October. Materials were the best performer, closing up nearly 12.0%. Industrials and Financials also showed strong gains for the month of November, finishing the month higher by 7.85% and 7.04%, respectively. Consumer Discretionary and Energy were the laggards, eking out a positive return of just 0.99% and 1.26%, respectively. 

Bonds

Wall Street continued to cheer the more mollifying comments from Federal Reserve chair Jerome Powell throughout November. Bonds extended their gains on the final day of the month after Powell wrapped up his prepared remarks at the Brookings Institution and answered questions about interest rates. Powell said he still thinks there is a "path to a soft or softish" landing for the economy, a hope that the Fed will be able to choke off inflation without leading to a recession. This would also mean a quicker path to a pause in rate hikes which would be a welcome sing for bonds, as bonds prices move inversely to rates.

Economic Update

A revision of the third-quarter US GDP report showed America's economy grew at a healthy 2.9% seasonally adjusted annual rate in the summer months. Similarly, a US job openings and quits report showed that the number of available jobs fell to 10.3 million last month, indicating that the labor market remains historically tight. So, while unemployment is low, there is still ample demand for workers in the economy.

The Kindness Book that Benefits Charity

When times are challenging, it can be helpful to read books that inspire us to feel better about the world or more optimistic that things will get better. Just in time for holiday gift giving, take a look at the book: HumanKind: Changing the World One Small Act At a Time.

Author Brad Aronson was inspired to write HumanKind when his family went through one of the most difficult times of their lives. As a distraction from his wife’s battle with leukemia, Jack wrote about the small acts of kindness performed by friends and strangers, acts that carried his family through the difficult challenges of her treatment and recovery.

He wove the threads of these stories (and many more) into the heartfelt tapestry of HumanKind. It will inspire you to see the good in the world, along with practical opportunities for how we can help and a well-vetted list of nonprofits that can guide you to easily channel your energies for good. All proceeds from this national bestseller go to the nonprofit Big Brothers Big Sisters. For the interesting back-story and to learn more about the book and author, click here. 

THOUGHT FOR THE MONTH

^{Index Definitions}

^{Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.}

^{Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.}

^{NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.} 

^{S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.}

^{S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.}

^{S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.}

^{S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.}

^{S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.}

^{S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.}

^{S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.}

^{S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.}

^{S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.}

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