Weekly Market Update: Economic Data Raises Hopes for a Continued Pause in Rate Hikes

What We Are Watching This Week:

  • Upcoming Consumer Price Index – Is inflation decreasing?
  • Upcoming Producer Price Index – Is the cost of goods declining?
  • U.S. retail sales data expected Wednesday – How resilient is the consumer?
  • Industrial Production – How strong is manufacturing?

Highlights From Last Week:

  • Consumer credit
  • Wholesale inventories
  • Jobless claims
  • Consumer sentiment

Over the past week, limited economic data releases were mostly as expected. One significant exception was the University of Michigan’s initial Consumer Sentiment Index, which fell unexpectedly to its lowest level in six months. Additionally, other data releases indicated a slowdown in economic activity, raising hopes that central banks might not need to implement further interest rate hikes. Notably, the bond market briefly rattled the equity market on Thursday, as the $24 billion auction of 30-year U.S. Treasuries saw its weakest demand in two years, causing bond yields to rise and equity markets to dip. However, on Friday, markets rebounded, recovering from the weakness observed on Thursday.

The major stock indexes had a mixed performance for the week. A noteworthy achievement was observed for the S&P 500 Index, which came close to matching its longest winning streak in almost two decades. On Wednesday, the S&P 500 recorded its eighth consecutive gain, while the Nasdaq Composite Index marked its ninth consecutive gain. However, the market’s strength was relatively narrow, with an equally weighted version of the S&P 500 Index underperforming its market-weighted counterpart by 1.90%, and the Russell 1000 Value Index lagging its growth counterpart by 404 basis points, the largest gap since March. The TSX struggled with oil, losing over 4% during the week. In terms of European markets, the pan-European STOXX Europe 600 Index closed 0.21% lower as optimism regarding a peak in interest rates faded. Among major European stock indexes, France’s CAC 40 remained relatively flat, Germany’s DAX gained 0.30%, Italy’s FTSE MIB declined by 0.59% and the UK’s FTSE 100 lost 0.77%.

In the third quarter of 2023, total household debt increased by 1.3%, reaching $17.29 trillion, as reported in Tuesday’s Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit. Mortgage balances rose to $12.14 trillion, credit card balances to $1.08 trillion and student loan balances to $1.6 trillion. Auto loan balances also continued their upward trend since 2011, reaching $1.6 trillion. Other debt categories, including retail credit cards and consumer loans, remained stable at $0.53 trillion. Delinquency transition rates increased for most debt types, except for student loans. Specifically, mortgage balances increased by $126 billion to $12.14 trillion, while home equity lines of credit (HELOC) balances rose by $9 billion to $349 billion. Credit card balances increased by $48 billion to $1.08 trillion (a 4.7% increase), auto loan balances went up by $13 billion and other non-housing balances increased by $2 billion. Student loan balances grew by $30 billion to $1.6 trillion. Overall, non-housing debt balances increased by $93 billion during this period.1

In September, the U.S. trade deficit rose by nearly 5% to $61.5 billion, although it remained near a three-year low and was on track for its smallest increase since 2020. Smaller trade deficits positively impact the Gross Domestic Product (GDP), which grew rapidly at 4.9% in the third quarter. Importantly, imports increased by 2.7% to $322.7 billion in September, marking the highest level since February. This increase was driven by U.S. companies building up inventory ahead of the holiday season, particularly in consumer goods like cell phones. In contrast, exports only rose by 2.2% to $261.1 billion, just below an all-time high. Weak global economic growth has dampened demand for many American products, although exports of items such as cars, passenger planes and COVID-related medicines have remained strong. Nevertheless, the strengthening U.S. dollar could pose a challenge in the future, potentially making American exports more expensive for foreign buyers and impacting export growth.2

U.S. wholesalers reduced their inventory levels in September, reaching a 13-month low. This reduction was primarily due to uncertainty about the sustainability of the recent economic momentum. The inventory-to-sales ratio, which measures the time it takes to sell all unsold goods in warehouses, declined from 1.36 in the previous month to 1.33 in September. Companies have been cautious, scaling back production and avoiding excessive inventory, as they are uncertain about the ongoing demand and prefer not to be stuck with unwanted goods.3

On Thursday, the U.S. Department of Labor reported that new jobless claims decreased by 3,000, reaching 220,000 in the most recent week. Economists had predicted new claims of 220,000 for the week ending November 4. Additionally, the number of individuals receiving unemployment benefits from all programs in the U.S. has increased for the seventh consecutive week, now reaching 1.83 million – the highest level in seven months. This rise in continuing claims may suggest that people are taking longer to find new jobs.4

According to the University of Michigan’s preliminary survey of consumer sentiment in November, sentiment declined for the fourth consecutive month, dropping by 5%. Although current and expected personal finances showed slight improvement, the long-term economic outlook decreased by 12%, largely due to concerns about the negative impact of high-interest rates and ongoing conflicts in Gaza and Ukraine. Lower-income and younger consumers experienced the most significant declines in sentiment. In contrast, sentiment among the top tercile of stockholders improved by 10%, reflecting the recent strength in equity markets. Year-ahead inflation expectations rose to 4.4%, indicating a sustained increase in inflation, with the current reading being the highest since April 2023 and well above the pre-pandemic range of 2.3-3.0%. Long-term inflation expectations also increased from 3.0% to 3.2% – the highest since 2011. Expectations for gas prices in both the short and long term reached their highest levels this year.5


1 https://www.newyorkfed.org/microeconomics/hhdc.html

2 https://www.bea.gov/sites/default/files/2023-10/trad0823.pdf

3 https://www.census.gov/wholesale/current/index.html

4 https://www.dol.gov/ui/data.pdf

5 http://www.sca.isr.umich.edu/

Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

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