Weekly Market Update: Stocks Rise Amidst Export Restrictions and Caution from Tech Giant NVIDIA

What We Are Watching This Week

  • Consumer confidence predictions
  • Personal Consumption Expenditures (PCE) and Core PCE reports
  • ISM Manufacturing data
  • S&P Case-Shiller Home Price Index updates

Highlights From Last Week

  • U.S. leading indicators
  • Existing home sales data
  • Consumer sentiment updates
  • S&P Flash Services and Manufacturing PMI results

During the U.S. holiday-shortened trading week, stocks closed modestly higher. NVIDIA, a leading A.I. chipmaker, reported strong Q3 earnings but issued cautious guidance due to export restrictions to China, causing its stock to fall. This affected the Nasdaq Composite Index‘s performance. Overall, growth stocks outperformed value stocks. In Europe, the STOXX Europe 600 Index increased by 0.91%, driven by hopes of future interest rate cuts by central banks. Major European indexes had mixed results, with France’s CAC 40 and Germany’s DAX rising but Italy’s FTSE MIB and the U.K.’s FTSE 100 falling. Despite a good Consumer Price Index (CPI) reading, Canadian stocks remain flat on the week, as investors remain pessimistic regarding Canada’s market, suggesting expectations of slower earnings growth.

On Monday, the Conference Board’s Leading Economic Index (LEI) for the United States declined by 0.8% in October, continuing a recent downward trend. Over the past six months, it contracted by 3.3%, a smaller decline than the previous six months. The LEI indicates a concerning economic trajectory marked by decreasing consumer expectations, a lower ISM Index of New Orders, falling stock markets and tighter credit conditions. The Conference Board predicts a short-term recession due to elevated inflation, high interest rates and reduced consumer spending caused by the depletion of pandemic savings and mandatory student loan repayments. They anticipate a modest 0.8% real GDP growth in 2024. In contrast, the Conference Board’s Coincident Economic Index (CEI) remained stable in October at 110.8, though it was revised downward from September. Over the previous six months, the CEI showed a 0.9% increase, an improvement from the last period. It comprises components like payroll employment, personal income less transfer payments, manufacturing and trade sales and industrial production, which is used to identify recessions. In October, three of these components advanced, with personal income less transfer payments being the most substantial contributor. The Conference Board’s Lagging Economic Index (LAG) increased by 0.1% in October, maintaining the same rate as in September. Over the past six months, it grew by 0.3%, a decrease from the prior six months. The overall picture is one of economic challenges, with most LEI components contributing negatively in October, raising concerns about the U.S. economy’s state. The CEI offers more stability, showing some improvement, but the uncertainty remains given the complex economic factors.1

In October, existing home sales in the United States declined by 4.1%, reaching a seasonally adjusted annual rate of 3.79 million. This represents a significant drop of 14.6% compared to the same period last year. However, the median price of existing homes continued to rise by 3.4% compared to the previous year, reaching $391,800. This marks the fourth consecutive month of year-over-year price increases. On the inventory front, the number of unsold existing homes increased by 1.8% from the previous month, resulting in a total of 1.15 million unsold homes at the end of October. This inventory level equates to a 3.6-month supply at the current monthly sales rate. In summary, while existing home sales experienced a decline in October, compared to both the previous month and the same period last year, home prices continued to rise. Additionally, the inventory of unsold homes increased slightly but remains relatively low, indicating ongoing challenges in the housing market, such as limited supply and affordability concerns.2

On Tuesday, StatsCan reported that the Consumer Price Index (CPI) increased by 3.1% year-over-year in October, down from September’s 3.8% rise, mainly due to a 7.8% drop in gasoline prices. Excluding gasoline, the CPI rose 3.6%, slightly lower than September’s 3.7%. Goods prices grew by 1.6%, impacted by lower gasoline costs, while services prices increased by 4.6%, driven by higher expenses for travel tours, rent and property taxes. Leading contributors to the CPI included mortgage interest, food from stores and rent. On a monthly basis, the CPI edged up 0.1% in October, driven by the annual pricing of travel tours and property taxes. Seasonally adjusted, the CPI dipped 0.1% monthly.3

The Labor Department’s report on Wednesday, one day early due to the Thanksgiving holiday, revealed that the number of Americans filing new unemployment claims dropped to a five-week low of 209,000, indicating a robust labor market. Despite this positive trend, there are hints of trouble as businesses hire fewer people, suggesting a slightly loosened labor market. Unadjusted claims reached their highest level since summer, while the number of people receiving unemployment benefits declined for the first time in eight weeks to 1.84 million. The gradual increase in continuing claims suggests a lengthier job search period. Economists caution that jobless claims can fluctuate significantly during the holiday season and should be interpreted cautiously.4

In October, orders for durable goods in the United States fell by 5.4%, primarily due to a decline in contracts for Boeing passenger planes. This decline was more significant than the 3.4% drop forecast by economists. Excluding the volatile transportation sector, new orders remained flat for the month, falling short of expectations. Business investment declined for the second month, with core orders slipping by 0.1%, excluding defense and transportation. The ongoing trend of falling core orders, observed in four of the past five months, is attributed to higher borrowing costs, which have discouraged companies from borrowing and investing. Commercial plane orders plummeted by 50% in October, following a substantial 91% increase the previous month. The automotive industry also reported a 3.8% drop in new orders, partly due to the United Auto Workers strike and consumer hesitancy caused by higher car prices and interest rates. Excluding transportation and automotive, orders remained unchanged, offering a clearer view of the state of U.S. manufacturing.5

In early November, the U.S. economy presented mixed signals, as per S&P Global data. The “flash” U.S. Services Index increased to 50.8, marking the highest level in four months, while the “flash” U.S. Manufacturing Index declined to 49.4, reaching a three-month low. Indices below 50 signify contraction. Notably, service providers and goods producers have reduced employment for the first time since June 2020. Total new orders saw growth, but cost pressures softened. The U.S. economy is slowing down from the robust 4.9% annual growth rate in Q3, and concerns about a potential recession are emerging, with a focus on consumer health.6


1 https://www.conference-board.org/topics/us-leading-indicators

2 https://www.nar.realtor/newsroom/existing-home-sales-receded-4-1-in-october

3 https://www150.statcan.gc.ca/n1/daily-quotidien/231121/dq231121a-eng.htm

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

5 https://www.census.gov/manufacturing/m3/adv/current/index.html

6 https://www.pmi.spglobal.com/Public/Home/PressRelease/b72b9c19b3bd48e78027009aad143044

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

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