Your Weekly Update for Monday, December 11, 2023.
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Summary
Markets were FLATTLY MIXED last week. The Dow Jones Industrial Average fell 0.02% to 36,240.05 while the S&P500 ended up 0.19% to 4,603.59. The Nasdaq Composite rose 0.67% to 14,401.23. The annual yield on the 30-year Treasury fell 9.3 basis point(s) to 4.325%.
Economic data for the week included the employment situation report that continued to show labor market strength, and gains in ISM services, while job openings fell back.
Global equities were mixed last week, with minor gains in the U.S., mixed results in the rest of the developed world, and a net decline in emerging markets. Bonds were little changed as well, as interest rates stabilized at lower levels. Commodities lost ground in several groups, with the headwind of a stronger U.S. dollar.
Economic Notes
(+) The ISM Services/Non-Manufacturing Index for November rose by 0.9 of a point to 52.7, exceeding the median forecast of 52.3. New orders were unchanged at a solidly expanding 55.5 level, while employment and business activity each rose further into expansion, with all but three of the 18 major industries showing growth. Prices paid fell by a few tenths but remained solidly expansionary as well (in the upper 50’s), which was likely related to still-high wage growth. This closely-watched report signaled the services part of the economy remains in high gear.
(+) The preliminary December Univ. of Michigan index of consumer sentiment showed a sharp gain of 8.1 points to 69.4, well above the 62.0 reading expected. Assessments of current conditions rose nearly 6 points, while expectations for the future rose nearly 10. Inflation expectations for the coming 1 year fell dramatically from 4.5% to 3.1%, the lowest level since early 2021, back into the pre-pandemic range. Inflation estimates for the next 5+ years fell by -0.4% to 2.8%. As seen in the numbers, it was noted by the survey administrators that improvement in inflation was a primary catalyst for the better mood, also seen in the improvement in business conditions.
(-) The JOLTs government job openings report for October showed a decline of -617k to 8.733 mil., well below the 9.300 mil. median forecast, and the lowest in two years, showing signs of a correction downward from the strong prior month. However, this series has also been increasingly plagued by a low response rate, as have some other economic releases. By segment, professional/business openings rose (93k), while falling sectors included trade/transportation (-95k), retail (-103k), and leisure/hospitality (-120k). On the side of labor additions, the job openings rate fell by -0.3% to 5.3%, while the hiring rate fell a tenth to 3.7%. On the departure side, conditions were status quo, with the quits and layoff rates flat at 2.3% and 1.0%, respectively.
(-) The ADP employment report for November showed a gain of 103k, below the median forecast calling for 130k. Services jobs rose by 117k, notably in trade/transportation/utilities and education/health, offset by a decline in goods-producing jobs of -14k, most of which were in manufacturing. With a lower correlation to the government employment report following an update in methodology, this appears to be less meaningful than prior readings.
(0) Initial jobless claims for the Dec. 2 ending week ticked up by 1k to 220k, matching consensus expectations. Continuing claims for the Nov. 25 week declined by -64k to 1.861 mil., well below the 1.910 mil. level median forecast. As these likely reflected seasonal adjustments related to Thanksgiving, these are likely less useful than normal.
(+) The employment situation report for November came in stronger than expected, although the underlying data is less impressive after revisions and sector one-off effects. Nonfarm payrolls rose by 199k, higher than the 185k median forecast. The Sept. payroll number was revised down by -35k, while Oct. was left unchanged. Thus far in 2023, payroll numbers, which are prone to wide room for error at the time of first release and later correction, have generally bounced around between 150-200k. This pace is far below the average monthly gain in 2022, but certainly not falling off a cliff. For Nov., private payrolls represented 150k, nearly double the prior month’s figure, noted by a return to work in Hollywood and the auto sector following newsworthy labor strikes. However, it was noted that job gains remained fairly narrow by sector. Leaders included health care (77k, broadly in doctor’s offices and hospitals), government (49k, all of which were in state/local), manufacturing (28k, mostly from autoworkers returning), and leisure/hospitality (40k, almost all in food/drinking places). On the negative side, retail jobs fell (-38k, most of which were in general merchandise/department stores), as did temporary help services (-14k). Other segments showed less dramatic changes.
The unemployment rate surprisingly fell by -0.2% to 3.7%, despite a tick higher in labor force participation, in contrast to remaining at 3.9%, as was expected. The U-6 underemployment rate came in similarly, falling two-tenths to 7.0%, as the number of part-time workers for economic reasons fell. Average hourly earnings rose by 0.4%, a tenth higher than expected, and twice the rate of the prior month. However, the year-over-year rate remained unchanged at 4.0%, which is a more reasonable pace than the 5% from a year ago. Average weekly hours rose a tenth to 34.4, although manufacturing hours were unchanged.
In an earlier report, nonfarm productivity for Q3 was revised up by over 1.5% percent to an annualized rate of 5.2%, a few tenths above expectations. Year-over-year, productivity rose 2.4%, about a percent above the average over the past four years starting just before the pandemic began. Unit labor costs for Q3 were revised down sharply to -1.2%, several tenths further than expectations. Year-over-year, costs are up 1.6%, in a continued deceleration from peak levels running over 6.5% in late 2021.
Market Notes
| Period ending 12/8/2023 | 1 Week % | YTD % |
| DJIA | 0.04 | 11.72 |
| S&P 500 | 0.24 | 21.81 |
| NASDAQ | 0.70 | 38.73 |
| Russell 2000 | 1.00 | 8.36 |
| MSCI-EAFE | 0.39 | 13.01 |
| MSCI-EM | -0.71 | 4.42 |
| Bloomberg U.S. Aggregate | 0.15 | 2.66 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2022 | 4.42 | 4.41 | 3.99 | 3.88 | 3.97 |
| 12/1/2023 | 5.43 | 4.56 | 4.14 | 4.22 | 4.40 |
| 12/8/2023 | 5.44 | 4.71 | 4.24 | 4.23 | 4.31 |
U.S. stocks earned small gains last week. Early in the week, stock sentiment turned negative as doubts that the Fed would cut rates sooner than later began to sink in, with some consternation about how the Friday employment situation report for November would turn out (the result was slower, but not weak job growth), while consumer sentiment sharply improved. Small cap stocks outperformed large caps, along with lessened interest rate fears.
By sector, consumer discretionary and communications stocks led the way—the latter led by Alphabet/Google and Meta with some excitement over the rollout of Google’s new AI model, Gemini. Energy fared worst along with falling oil prices, along with materials and consumer staples. Real estate was little changed on the week. In the healthcare sector, the Biden administration has made comments about high prices charged for certain pharmaceuticals by threatening to drop the patents for such drugs developed with taxpayer subsidies if they’re deemed too expensive. Naturally, there has been pushback from drugmakers claiming this would stifle innovation (the standard response when price caps are discussed).
Foreign stocks were little changed on net in developed markets, with gains in Europe offset by declines in the U.K. and Japan. European equities appear to be riding continued optimistic hopes for rate cuts early in 2024, as inflation has decelerated, and economic growth continues to struggle. Japanese stocks struggled for the opposite reason, that the central bank could be on the verge of abandoning negative interest rate policy, although economic growth has also been weak. Emerging markets were mixed as well, with gains in India and a sharp decline again in China, as Moody’s cut its government bond outlook from ‘stable’ to ‘negative,’ based on the high debt load from state-owned firms and local governments. On the bright side, China government stimulus appears to be ramping up, which has often tended to be a market positive looking forward.
Bonds were little changed last week, with investment-grade corporates and senior floating rate bank loans outperforming U.S. treasuries and high yield, which earned a negative return. Foreign bonds were mixed along with the roughly 1% rise in the U.S. dollar. Since the beginning of November, the drop in bond yields has been swift, resulting in strong fixed income returns. This seems to reflect market celebration of eased inflation, but also rising hopes for the Fed cutting rates sooner than later in 2024. The former was largely expected (eventually), while the latter remains to be determined, and is one of the most closely-watched developments going into the new year.
Commodities lost ground last week, along with a stronger dollar, with negative price results for energy, industrial metals, and precious metals. Crude oil fell nearly -4% last week to $71/barrel, with continued concerns over a slower global economy leading to weaker petroleum demand in the near-term. On an unusual side note, a referendum in Venezuela passed to approve the potential confiscation of land (Guayana Esequiba), which has been under dispute for the past century-plus with neighboring Guyana. Guyana is a significant oil producer in its own right, with an American footprint (unlike Venezuela, which remains under U.S. sanctions).
Mortgage Rates
“The 30-year fixed-rate mortgage averaged near 7 percent this week, down from nearly 7.80 percent just six weeks ago,” said Sam Khater, Freddie Mac’s Chief Economist. “When rates began to rapidly drop, purchase applications rebounded initially, but this improvement in demand diminished in the last week. Although these lower rates remain a welcome relief, it is clear they will have to further drop to more consistently reinvigorate demand.”
The 30-year FRM averaged 7.03 percent as of December 7, 2023, down from last week when it averaged 7.22 percent. A year ago at this time, the 30-year FRM averaged 6.33 percent.
The 15-year FRM averaged 6.29 percent, down from last week when it averaged 6.56 percent. A year ago at this time, the 15-year FRM averaged 5.67 percent.
Freddie Mac’s Primary Mortgage Market Survey® is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Borrowers may still pay closing costs which are not included in the survey.
Through our relationship with Mortgage Window, Inc. (NMLS#2485156) in Vancouver, Washington we originate residential and reverse mortgages.
Selected Cryptocurrencies
| Symbol | Name | Price | 24h % | 7d % | Market Cap | Volume(24h) |
| BTC | Bitcoin | 41997.25 | -4.23% | 1.02% | $821,723,989,632 | $28,673,377,804 |
| ETH | Ethereum | 2232.76 | -4.90% | -0.36% | $268,391,980,049 | $13,446,865,841 |
| BNB | BNB | 243.75 | 1.52% | 6.78% | $36,975,991,187 | $1,153,413,023 |
| XRP | XRP | 0.6215 | -5.89% | 0.91% | $33,538,635,938 | $1,901,331,877 |
| SOL | Solana | 68.09 | -6.89% | 12.88% | $29,025,669,482 | $2,989,422,930 |
| ADA | Cardano | 0.5503 | -7.17% | 37.59% | $19,441,188,984 | $1,215,300,705 |
| DOGE | Dogecoin | 0.09729 | -3.22% | 11.95% | $13,831,743,213 | $1,639,124,833 |
| AVAX | Avalanche | 35.64 | 8.85% | 66.77% | $13,043,522,304 | $2,802,137,674 |
| TRX | TRON | 0.1048 | -2.72% | 2.07% | $9,270,498,444 | $326,394,441 |
| DOT | Polkadot | 6.67 | -7.72% | 20.65% | $8,373,954,694 | $482,303,339 |
| LINK | Chainlink | 14.81 | -7.98% | -4.97% | $8,249,191,331 | $974,063,579 |
| MATIC | Polygon | 0.854 | -5.49% | 7.41% | $7,927,577,357 | $751,311,537 |
| TON | Toncoin | 2.23 | -3.56% | -5.98% | $6,283,207,531 | $65,679,702 |
| SHIB | Shiba Inu | 0.000009583 | -6.15% | 8.28% | $5,647,501,432 | $373,693,242 |
| LTC | Litecoin | 72.91 | -6.92% | 0.49% | $5,393,139,991 | $448,537,192 |
| BCH | Bitcoin Cash | 233.56 | -6.35% | -4.34% | $4,573,786,957 | $244,687,987 |
| ATOM | Cosmos | 9.9 | -4.85% | 4.53% | $3,748,497,992 | $215,327,501 |
Information current as of 6:00 AM PST, Monday, December 11, 2023. Source: https://coinmarketcap.com
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Sources: Ryan Long, CFA, FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Marketfield
Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard & Poor’s, StockCharts.com, The Conference Board, Thomson Reuters, T. Rowe Price, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wall Street Journal, The Washington Post. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. FocusPoint Solutions, Inc. is a registered investment advisor.
Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.