Inflation hits a 2-year low, the government averts a shutdown, the stock market is higher. What a week! Can I just stop there??
FINALLY! It’s taken roughly 2 years for the core consumer price index (measure of inflation) to get back to 4%. Markets cheered the good news with a 500-point rally on the Dow index as treasury yields fell. Most of Wall Street now predicts that the Fed will be forced to stop their rate hiking cycle, ultimately leading to more stability in the bond market which is what the equity market needs to continue rising. The central bank has consistently fought inflation since March 2022, increasing its’ borrowing rate 11 times to a total of 5.25%, a 22-year high. Also posted this week were the retail sales figures from the previous month. Sales fell for the first time since March of this year. These figures help add more evidence that the economy is slowing to a more appropriate growth rate. Economists had been worried that the spending spree Americans had been on over the summer would continue to propel inflation even higher. The recent data shows our spending spree on concerts, hotels, airfare, etc. has significantly slowed since summer ended.
Although all of this good news has been taken in stride by the markets, the Fed most likely will continue to speak hawkishly and warn investors about their long-term goal of 2% (which is still far off). Don’t be surprised by this. The Fed has time and time again reiterated that they are looking for long-term trends in the data. One or two months’ worth of data will not be enough to sway their decision one way or another.
We continue to closely watch the treasury market. The 10-year treasury yield is a significant benchmark for loan rates across the market (most notable the 30-year mortgage rate). As we all know, the housing market has been on one of the wildest roller coaster rides over the past 3+ years. The current 30-year mortgage is sitting around 7.75%, slightly below its near-term peak of 8.09% on 10/27. I’ve been reading a ton of data from the real estate world and there is clear evidence that these rates have pushed millions of Americans off the field and onto the sidelines. Even still, home prices remain elevated due to the lack of inventory which is directly correlated to consumers holding onto their low rates. Although rates have come down a little, we need much lower rates before we see the housing market loosen up.
Some other interesting news comes in the form of a statement by the Walmart CEO, Doug McMillon. He was recently quoted saying that deflation could be coming this holiday season. “And while that would put more unit pressure on us, we welcome it, because it’s better for our customers” he noted. The Home Depot CFO, Rochard McPhail, also was quoted saying the worst of the inflationary environment is behind us. These are just two perspectives of executives who have their finger on the pulse of the American consumer. Perhaps most immediately, consumers can anticipate a slightly cheaper average Thanksgiving cost this year. The American Farm Bureau Federation has said the average cost of a 10-person dinner was down 4.05% from $64.05 last year to $61.17.
Last but not least, we can all breathe a bit easier with the news that a government shutdown has been staved off for the remainder of 2023. A bill was passed this week to provide funding for the next couple of months, so while the shutdown is still a possibility in the future, we can spend the holidays with a reprieve from a shutdown looming over our festivities.
For those that celebrate, we wish you a happy (and hearty!) Thanksgiving celebration, spent with those you love! With a short week next week, we’ll take a break from our weekly update. But rest assured, if anything big goes down, we’ll be here!
https://apnews.com/article/congress-government-shutdown-43064e2521454f5ce32851ef74ac50cf
https://www.cnbc.com/2023/11/16/deflation-holiday-walmart-ceo.html
https://www.cnbc.com/2023/11/14/cpi-inflation-report-october-2023.html
https://www.cnbc.com/2023/11/16/us-treasurys-investors-weigh-interest-rate-outlook-.html
Steven C. Dengler, CFP®
Financial Advisor / Director of Planning
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.