Hello, this is Tom Jalics, Chief Investment Strategist at Fifth Third Bank
U.S. equities posted their second straight week of gains and now sit near two-and-a-half month highs. The S&P 500 Index was up 1.4% for the week. The Nasdaq Composite closed the week up 2.4% and the Dow Jones Industrial Average was 0.7% for the week. U.S. Treasury yields rose modestly last week with the 10-year U.S. Treasury note ending the week up eight basis points to 4.65% and the 2-year U.S. Treasury note ending the week twenty-two basis points higher to 5.06%. The 2-year/10-year U.S. Treasury yield curve remained inverted, finishing the week at 41 basis points inverted. Gold finished the week 2.7% lower, ending the week at $1,939/ounce. West Texas Intermediate (WTI) crude oil was down by 4.0% for the week, ending the week at $77.26/barrel.
While it was a relatively quiet week on the domestic economic front, investors did get some information on jobs and consumer sentiment. Initial jobless claims for the week ending November 4 decreased by 3,000 to 217,000. Continuing jobless claims for the week ending October 28 increased by 22,000 to 1.834 million. Initial jobless claims remain quite low but continuing jobless claims have reached their highest level since April, offering a view that there has been some modest softening in a tight labor market. The U.S. economy has remained remarkably resilient through the first three quarters of 2023. In fact, the third-quarter U.S. GDP annualized growth rate of 4.9% was the strongest since 2021 and well above what is considered trend growth in the U.S. of around 2.0%. This economic growth has been driven by personal consumption. The U.S. economy is driven by the consumer as consumer spending comprises about 70% of U.S. GDP. Neither initial nor continuing jobless claims are signaling an imminent decline in consumer spending nor an economic slowdown. Last week also saw the preliminary reading for the University of Michigan Consumer Sentiment Index for November which came in at 60.4, down from October's final reading of 63.8. November marks the fourth straight month that consumer sentiment has declined. The key takeaway from the report is that consumer sentiment is moderating and could be a sign that on the margin prospective consumer spending may moderate as well.
Last week investors digested a slew of S&P 500 earnings reports. Year over year earnings expectations are growing for the first time in a year. Additionally, analysts are expecting S&P 500 earnings growth to improve in the first half of 2024. According to FactSet Earnings Insight, for the third quarter of 2023, the S&P 500 is reporting (year-over-year) earnings growth of 4.1%. For the fourth quarter, analysts are now projecting earnings growth of 3.2%. For first quarter 2024, analysts are predicting earnings growth of 6.7%. For second quarter 2024, analysts are projecting earnings growth of 10.5%. Growth in earnings expectations are a sign of an improving economic outlook, not a slowdown.
This week investors will be eyeing earnings releases from retailers including Walmart, Target, Home Depot, and Macy’s. On the domestic economic front, the U.S. Census Bureau will release data on national retail sales for October. Additionally, investors will digest the latest updates on consumer inflation and the housing market, with the October Consumer Price Index, last month’s housing starts, and the National Association of Home Builder’s Housing Market Index for November. Another threat to the economy will come to the forefront this week in the undecided national budget. Congress passed a temporary resolution at the end of September to keep the government funded through November 17. If Congressional leaders fail to pass a series of spending bills, or another temporary resolution, by Friday, a government shutdown could be in cards.
As always, we will be watching and reporting to you next week. Thank you.