Economic Update 12-11-2023 

• 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. 

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). 

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

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  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.