U.S. Equities Bounce Back With Best Week Of The Year

Market Down and Dirty

Last Week’s Economic/Market Summary

Data

• U.S. equities bounced back after 3 months of selling for their best week of the year.
  • S&P 500 +5.85% Dow +5.07% Russell 2000 +7.57%, Nasdaq +6.61%[1]
    • The All-Country World Index rose +5.29%.1
  • S&P 500 sub-sectors were all firmly higher last week.
    • Real Estate & Consumer Discretionary led to the upside. 1
    • Healthcare, Staples, & Energy were the only sectors that didn’t gain over 3.5%.1
  • The CBOE Volatility Index (VIX) was smashed lower by 30% to close at 14.91. 1

• US Treasury bond yields plowed lower similar to what happened in the market chaos of March 2020.
  • US 2yr -0.19% at 4.83%, 10yr -0.19% to 4.57%, 30yr -0.24% to 4.77%.1
  • The Treasury’s lower borrowing plans and a seeming dovish Federal Reserve drove yields down.
• Commodities as an aggregate asset class were mixed last week.
  • WTI Crude lost -5.49%.1
  • Gold declined -0.70%.1
  • The US Dollar index sank -1.41%.1
• In our opinion, U.S. economic data continued to be mixed last week.
  • Measures of the labor market softened a bit and came in below expectations. 1
  • ISM’s measures of manufacturing & services came in below consensus. 1
  • Consumer confidence was stronger than most anticipated @ 102. 1
• An index of equities outside the US (FTSE All-World ex-US) gained +5.75%.1
  

Conclusion

• US Equities shot higher last week with major indices having their best 5-day period of 2023.
  • The small-cap Russell 2000 led things higher with a gain of +7.57%.1
  • The run-up followed a 3-month institutional selling spree that was the 2^nd biggest of the past decade. 1
    • A basket of the most-bet against companies rose 13% last week. 1
  • We believe the Treasury’s plan to reduce quarterly borrowing followed by evidence that Federal Reserve Chair Jerome Powell is turning less hawkish fueled the biggest concerted melt-up since November 2022.
• S&P 500 subsectors were all higher last week.
  • The most beat up sectors over the last few months led to the upside.
    • Consumer Discretionary bounced back on hopes that the consumer isn’t slowing as much as has been fears.
    • Real Estate bounced higher on decreasing interest rates.
  • Defensive areas of Healthcare & Staples rose over 3% yet were the lightest performers. 1
• The bond market had one of its best weekly performances in the last decade as yields fell sharply, lifting the price of individual bonds.
  • 10-year yields, a benchmark for global borrowing, fell about 0.25% amid growing confidence that the Federal Reserve is done hiking interest rates, with the latest spark coming Friday on signs US job growth is cooling. 1
  • The US Treasury signaled Wednesday it plans to slow the rate of growth in quarterly debt sales, quelling — for now — worst-case anxieties that surging supplies of government bonds would elongate a nearly two-year rout in Treasuries.
  • Fed chair Powell spoke last week following the latest Federal Reserve meeting and was interpreted in a dovish fashion, despite repeated assurances from the Fed chief that decisions about future rate cuts have yet to be made and will depend on incoming data.
    • Fed swaps aka bets on what the central bank will do now show traders see an only 16% chance of another hike by January and have moved up when they expect cuts. 1
• Earnings season is winding down with companies overall surprising to the upside against significantly reduced expectations for their results.
  • Apple Inc., Alphabet Inc., Meta Platforms Inc. and Tesla Inc. all gave investors reason to fret about growth.
    • From Apple’s muted holiday outlook to Google parent Alphabet’s lackluster cloud computing sales results, a recurring theme for the cohort was caution. Meta warned that the year ahead is looking less predictable, while Tesla raised concerns that demand for electric cars is starting to weaken. 1
  • The selloff has made valuations cheaper, but they’re still pricey and with future expansion less certain as shares of the seven biggest companies in the S&P 500 Index are priced at an average of 31 times projected profits. 1
    • That’s nearly twice the multiple of the other 493 stocks in the benchmark.

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net 

 1 Source: Bloomberg – 11/3/2023 

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