Weekly | U.S. Economic recession?
Your weekly summary with the most important news for your investments.
Your weekly summary with the most important news for your investments:
Stock market performance in November:
Change in demand for fixed income instruments and signals from the Federal Reserve (Fed):
Economic topics of interest for the week ahead.
For the month of November, including last Friday, December 1, the U.S. stock market returned an average of +10.7%:
Leading the Dow to accumulate a +9.3% rise so far in 2023.
The S&P 500 has returned +19.7%.
The Nasdaq +36.7%.
Led by stocks such as Intel (+65.5%), Microsoft (+56.2%) and Apple with an extraordinary return of +47.2%.
However, the week was also accompanied by an extraordinary demand for sovereign fixed income instruments with the 10-year rate easing by -27 basis points to 4.2% under the assumption that the Federal Reserve (FED), as we commented in our previous edition, will begin a downward cycle in the monetary policy rate in March if the economy continues to show signs of a more pronounced macroeconomic slowdown, with lower inflationary pressures, a topic that we will address in greater detail below. This in a context where the Beige Book showed the first signs of a less robust labor market and Fed Chairman Jerome Powell continued to make anti-inflationary comments last Friday, ahead of the monetary policy meeting to be held by Fed officials on December 12 and 13. On the corporate front, the focus was on the back-and-forth between Disney CEO Bob Iger and X owner (and Tesla CEO) Elon Musk over advertising spending and the redirection of budgets to other platforms. Meanwhile, the week saw the passing of two great people in the country's business and political history: Berkshire Hathaway's Charlie Munger (aged 99) and Henry Kissinger (aged 100), respectively, both with historical influence on the country's development.
This week's macroeconomic focus will be on last month's U.S. employment data, where the economy is expected to have generated 180 thousand new jobs in November, the unemployment rate remained at 3.9% and wage inflation eased marginally to 4% (from 4.1%). On the corporate front, Autozone, Campbell, Gamestop, JM Smucker, JM Smucker, Lululemon and Toll Brothers among others will be reporting their quarterly results and we are all waiting for Fedex and Nike's results in the coming weeks. In between last night Alaskan Air announced the purchase of Hawaiian Airlines, as the consolidation of the airline industry continues unabated in an environment where the price of oil has continued to decline in the month of November accumulating a drop of -8% to close last Friday below US$75 a barrel. On the geopolitical front, after several days in which Israel and Hamas exchanged hostages and there was a humanitarian truce, it came to an end over the weekend, and the war conflict resumed, in anticipation of the Jewish holidays of Hanukkah to be celebrated starting on Friday, December 8. Meanwhile, the US government announced that the budget to support Ukraine would be coming to an end before the end of the year if Congress does not approve a package of additional economic measures. This in a context where the stock market in India reached its highest level ever after Narendra Modi's government won the weekend elections, the price of gold closed at its historical price above US$2,100 an ounce and Bitcoin (mysteriously) climbed to US$42,000.
Let's start with a brief summary of the Beige Book released last Wednesday by the Fed where it wields that:
Economic activity was softer, with mixed regional reports. The overall economic outlook has become less optimistic.
Followed by:
Labor demand declined, with most districts reporting flat to modest employment gains. The labor market experienced increased applicant availability and improved retention rates. Despite some instances of layoffs and a greater willingness to shed underperforming staff, the overall labor market remained tight, especially for skilled work.
In a context where business concerns:
...include geopolitical instability, the impact of elevated interest rates and the looming risks of a recession.
All this accompanied by Powell's comments last Friday where he wields that:
It would be premature to conclude with confidence that we have reached a sufficiently restrictive stance or to speculate about when we might ease policy. We are prepared to tighten policy further if it is deemed appropriate to do so.
Where JP Morgan Chase CEO Jamie Dimon wielded the following comments in the week:
I am cautious about the economy ... Interest rates may rise and that could lead to a recession.
At this point, it would seem that, just as the Fed had a delayed reaction to inflation in previous years, a concern is being sown that keeping the policy rate too high for a prolonged period of time will eventually lead to a recession, as the Beige Book and Dimon argue. This in a context where durable goods prices are already in a deflationary process and global inflation is gradually easing towards more sustainable medium-term levels.
Even so, for some, the fact that stock market volatility, as measured by the VIX, has masterfully eased to 12.6 points and the price to earnings ratio of the S&P 500 has quickly climbed to 22.5 times, may be enough to bring the S&P 500 target in line with the research houses' expectations for 2024 where the average is close to 5,000 points (with the index currently at 4,595 points).
In conclusion, this week the word "recession" started buzzing again, which could trigger a change in stock market direction after a month of extraordinary returns.
This Week
Monday (December 04)
Quarterly Reports
Korea Electric Power Corporation
GitLab Inc.
KT Corporation
IDT Corporation
Lanvin Group Holdings Limited
Economic Reports
Industrial Orders Report
Industrial Orders Report, excluding Transportation
Tuesday (December 05)
Quarterly Reports
BHP Group Limited
AutoZone, Inc.
Ferguson plc
SatixFy Communications Ltd.
MongoDB, Inc.
Economic reports
Red Book Annual Change Release
ISM Manufacturing Report
Job Openings Report (JOLTS)
Wednesday (Dec. 6)
Quarterly Reports
Brown Forman Corporation
Veeva Systems Inc.
Campbell Soup Company
Chewy, Inc.
Braze, Inc.
GameStop Corporation.
Economic Reports
Export Report
Imports Report
Trade Balance Report
Thursday (December 7th)
Quarterly Reports
Broadcom Inc.
lululemon athletica inc.
Dollar General Corporation
The Cooper Companies, Inc.
DocuSign, Inc.
Economic Reports
Initial Unemployment Support Report
Friday (December 8)
Quarterly Reports
Hello Group Inc.
Johnson Outdoors Inc.
SigmaTron International, Inc.
Economic Reports
Payroll Report for non-farm employees
Unemployment Rate Report
Preliminary Michigan Consumer Sentiment Report
Now you have more information about your investments. See you next week with more news.
*This is an illustrative example and does not represent an investment recommendation.