Market Synopsis: Stocks Mixed, Treasury Yields Mixed, Commodities Lower, Dollar Higher, Crypto Higher
Past Week Events:
This Week's Events:
On November 9, 2023, Federal Reserve Chairman Jerome Powell addressed an International Monetary Fund audience in Washington, D.C., expressing uncertainty about whether the Federal Reserve's actions have sufficiently tamed inflation to reach their 2% target. Despite implementing 11 rate hikes, resulting in a benchmark policy rate range of 5.25%-5.5%, the core personal consumption expenditures price index indicates inflation remains at 3.7%, well above the desired level. Powell's remarks, which were briefly interrupted by climate protesters, had a notable impact on financial markets, causing a decline in stocks and an increase in Treasury yields. He stressed the importance of continued vigilance in achieving sustainable inflation reduction and acknowledged that the Federal Reserve might need to tighten its policy further if inflation reaccelerates. Despite market expectations suggesting the end of rate hikes, with low probabilities indicated for a hike in the December meeting, Powell emphasized a cautious approach, balancing the risks of over-tightening against those of insufficient action. He highlighted the strong performance of the U.S. economy, with a 4.9% GDP growth in the third quarter, but also noted potential risks, including stronger-than-expected economic growth that might require further monetary policy responses. Powell also pointed out that while improvements in supply chains have helped to ease inflation pressures, a more significant portion of the progress in reducing inflation might need to come from continued tight monetary policy.
In November 2023, American consumer sentiment fell to its lowest level since May, with a University of Michigan index reading of 60.4, below the expected 63.7. This decline marks the fourth consecutive month of decreasing sentiment. Concerns over high interest rates and ongoing conflicts in Gaza and Ukraine have negatively impacted long-term economic outlooks. Inflation expectations have risen to levels not seen since 2011, with a forecast of 3.2% over the next five years. Gas price expectations also reached their highest point this year. Despite some stagnation in the Consumer Price Index (CPI) growth, Federal Reserve Chair Jerome Powell and other Fed officials suggested that additional interest rate hikes might be necessary to maintain the downward trajectory of inflation. Richmond Fed President Thomas Barkin expressed concerns over sustained shelter and services inflation, indicating the potential need for further policy tightening.
Next Week:
CPI, the Consumer Price Index, will be released next week. CPI is a key indicator of inflation, as it measures the price change of a certain basket of goods and services. Headline CPI has been declining, as the year-over-year percent change was reported at 3.7% last month and is projected to drop to 3.3%. To compare, it was at 6.4% during the January 2023 report. The conflict most policymakers tackle is the persistent core CPI, as it has seen a decline but not on the same level as a headline. Year-over-year core CPI was at 4.1% last month and is projected to remain stagnant at 4.1%.
The PPI, which is closely related to the CPI, will also be released the following week. Consumer pricing changes are tracked by the CPI, whereas the PPI tracks producer price changes. PPI year-over-year was at 2.2% last month and core PPI year-over-year dropped at 2.8%. Both of these economic indicators are quite important and will be eagerly awaited.
Market Snapshot:
During the week of November 10, 2023, macroeconomic data showed disappointing trends including higher continuing jobless claims, declining consumer sentiment, and rising inflation expectations. Despite these negative indicators, investors gravitated towards major technology stocks, dubbed the "Magnificent 7," which significantly outperformed other sectors and added $1.3 trillion in market cap. The Nasdaq, heavily influenced by these tech giants, notably outperformed small-cap stocks represented by the Russell 2000.
Federal Reserve Chairman Jerome Powell's remarks on controlling financial conditions affected the market, particularly in the tech sector. Tesla underperformed, while Microsoft reached a new high, nearing Apple's market cap. This week saw a divergence with defensive and cyclical stocks both declining, while growth stocks, particularly in technology, outperformed value stocks.
In the bond market, long-term yields slightly declined, but short-term yields increased, leading to a more inverted yield curve. The 2-year Treasury yields crossed 5.00%, experiencing the most significant weekly rise since May.
The dollar's trajectory was not specified in the summary, but Bitcoin experienced a significant surge to 18-month highs, driven by ETF approval hopes. Ethereum also saw a considerable rally, outperforming Bitcoin in relative terms.
Gold prices declined for the second consecutive week, failing to maintain levels above $2,000, while oil prices trended upwards towards the end of the week.
The overall market dynamics suggest an investor shift towards technology stocks amid uncertain economic conditions, with a general trend of risk aversion impacting gold and bond markets. The sentiment implies that central banks' actions, particularly regarding liquidity and monetary policy, continue to be a critical driver of market trends.
Quip of the Week:"In trading/ investing, it's not about how much you make but rather how much you don't lose."
- Jim Rogers
U.S Equities:
Indexes(Week)
SPX 4,415.24(1.31%), DJIA 34,283.10(0.65%),
NASDAQ 13,798.11(2.37%), RUT 1,705.32(-3.15%)
Sectors:
Large technology growth stocks dominated the market this past week, with technology ending at the top of the ladder up over 4.5%. The "Magnificent 7" performed well, reflecting the overall performance of the technology sector. On the other hand, energy was at the bottom of the ladder in its usual volatile state, ending over 3.75% negative. Despite geopolitical tensions due to the conflicts in the Middle East, there is a rising worry about global demand for oil and a dropping worry about supply, causing oil prices to drop, reflecting the energy sector as a whole.
Treasuries:
On November 9, 2023, U.S. Treasury yields experienced a significant surge following a disappointing 30-year bond auction and Federal Reserve Chair Jerome Powell's hawkish remarks. The auction yielded higher rates than anticipated, signaling a lack of investor confidence and marking the largest rate miss since August 2011. Powell's comments at theIMF conference indicated that the Fed may still need to be fighting inflation aggressively with higher rates. This sentiment led to a spike in yields, with the benchmark 10-year yield jumping 12.6 basis points to 4.634%, its largest one-day gain in three weeks, and the two-year yield increasing 8.85 basis points to 5.022%. Market reactions adjusted the likelihood of a rate cut by June 2024 to 60%, down from 70% before Powell spoke. The yield curve also showed a modest easing of its inversion, reflecting the market's reassessment of the Fed's policy trajectory in light of these developments.
Commodities:
Oil
Oil prices fell nearly 3% to three-month lows, with Brent crude settling at $79.54 a barrel and U.S. crude at $75.33, amid concerns over declining demand in the U.S. and China. A significant build-up in U.S. crude stocks and downward adjustments in U.S. production and consumption forecasts contributed to the drop. Economic data from China and the Eurozone further fueled concerns about global demand. Despite geopolitical tensions in the Middle East, the market focus has shifted from supply disruptions to easing supply conditions. Goldman Sachs noted that OPEC's net oil exports remain close to April levels, despite production cuts. Russia is considering easing gasoline export bans, which were imposed to address domestic issues. Barclays has reduced its 2024 Brent crude price forecast to $93 a barrel.
Gold
Gold prices fell sharply this past week, this decline can be mainly attributed to Federal Reserve Chair Jerome Powell's hawkish remarks. Gold's demand as a safe haven decreased, leading to a more than 1% drop in its price, compounded by rising interest rates and a stronger dollar. Palladium, affected by the growing adoption of electric vehicles and a shift to cheaper platinum in autocatalysts, plummeted to five-year lows. The overall decline in precious metals, including a 2% drop in platinum, reflects the market's sensitivity to macroeconomic factors and monetary policy changes.
Crypto:
BTC -37,116, 4.71% ETH - 2,051, 8.69%
BTC Graph (5-day)
Many analysts have recently projected that Bitcoin (BTC) could reach its peak price of over $69,000 by mid-2024, entering an "acceleration phase" characterized by significant volatility and a sharp rally. This prediction by Cory Mitchell of Trading.biz is based on historical patterns, noting that Bitcoin often experiences substantial gains about a year and a half after hitting a low, which occurred last November. Bitcoin's recent surge is partially attributed to the push for spot Bitcoin exchange-traded funds (ETFs) in the U.S., signaling growing institutional interest. This interest is further evidenced by the high trading volumes of Bitcoin futures on the Chicago Mercantile Exchange (CME), surpassing those of Binance, and the increase in open interest on the CME, suggesting a rising demand for Bitcoin products.
Europe:
Stoxx 600- 443.31, -0.21% DAX- 15,234, 0.30% FTSE 100 -7,360, -0.77%
DAX Chart (5-day)
Continental AG, a major automotive parts manufacturer, is contemplating various measures to enhance the competitiveness of its automotive division. The company is considering restructuring administrative processes to enable quicker, more agile decision-making and cost savings, although it hasn't confirmed reports about cutting approximately 5,500 jobs. Manager Magazin suggests these potential job cuts could mainly affect administrative roles, especially in Germany, where over 1,100 jobs might be affected. This restructuring aims to save around 400 million euros annually. The automotive division, representing about a quarter of Continental's workforce with roughly 25,000 employees, anticipates a strong fourth quarter and higher growth in the global auto market this year. However, the company maintains a slightly more conservative outlook for the next year, reflecting the ongoing challenges and changes within the automotive industry.
Asia:
XJO (Australia)-6,976, -0.02% Shanghai 180 Index-7,706, -0.54% Nikkei 225- 32,568, 1.93%
XJO Chart (5-day)
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