U.S. and Canadian Markets Celebrate Seventh Consecutive Week of Gains

What We Are Watching This Week

  • Housing Starts
  • U.S. Leading Indicators
  • Personal Consumption Expenditure Price Index and Core PCE

Highlights From Last Week

  • U.S. Consumer Price Index
  • Producer Price Index
  • U.S. Fed Interest Rate Announcement
  • U.S. Retail Sales

U.S. and Canadian markets continued their positive trend, marking the seventh consecutive week of gains. The S&P 500 is up nearly 23% for the year, while the Canadian TSX has risen by almost 6%. This streak of gains for the S&P 500, Nasdaq and Dow Jones is the longest since 2017, with the first two reaching 52-week highs and the Dow hitting an all-time high. The gains were widespread, with an equally weighted index of S&P 500 stocks outperforming its market-weighted counterpart. Small-cap stocks also did well, with the Russell 2000 Index surging 5.55% and exiting bear market territory for the first time in over 20 months. The STOXX Europe 600 Index increased by 0.92% in Europe as markets anticipated central banks cutting interest rates in 2024. Major European indexes had a mixed performance, with France’s CAC 40 gaining 0.93%, but Germany’s DAX and Italy’s FTSE MIB slightly declining. The U.K.’s FTSE 100 Index added 0.29%.

On Tuesday, the U.S. Bureau of Labor Statistics reported the cost of living in the United States saw a minimal increase of 0.1%, primarily due to lower oil prices. This figure defied economists’ expectations, who had anticipated a second consecutive month of flat consumer prices. However, when excluding food and gas, the core consumer prices rose by 0.3%, aligning with forecasts and drawing attention from the Federal Reserve, which considers this core rate a more accurate predictor of future inflation trends. The annual inflation rate decreased from 3.2% to 3.1% in November, while the core rate remained stagnant at 4%, doubling the Fed’s 2% target. Gasoline costs decreased by 6%, while food prices rose by 0.2%. The primary driver behind inflation was higher shelter prices, with rents surging by 0.5% in the month and 6.9% over the past year. Economists anticipate that shelter costs may stabilize in the coming months, which could lead to a more rapid decline in inflation toward the Fed’s target in 2024. Used vehicle prices bucked a five-month trend of declines, rising by 1.6% in November. The big picture reveals a slowing inflation trend, potentially returning to pre-pandemic levels within a year or two. The Federal Reserve is expected to maintain high-interest rates to manage inflation while closely monitoring economic indicators to gauge whether the current expansion can continue despite these conditions.1

On Wednesday, the Bureau published that U.S. wholesale prices remained stable, indicating a gradual easing of inflation. Lower gasoline prices were a significant factor in this mild inflation report, and most major categories saw limited price fluctuations. Economists, as the Wall Street Journal surveyed, had expected a 0.1% increase in the producer price index. Wholesale costs often act as a leading indicator for future inflation trends. Over the past 12 months, the increase in wholesale prices slowed from 1.2% to 0.9%. A “core” measure of wholesale prices, excluding food, energy and trade margins, increased by 0.1% last month, with a year-over-year increase of 2.5%, marking its lowest level since February 2021. In November, energy prices decreased by 1.2% due to lower oil costs, offsetting the headline wholesale inflation figure. However, food prices saw a notable 0.6% rise, primarily driven by a 59% increase in egg prices, which could persist if another avian flu outbreak occurs. The cost of services, a significant contributor to recent inflation, remained unchanged in November, suggesting potential for further declines in the inflation rate. Down the supply chain, inflation was soft, with the wholesale cost of partly finished goods unchanged and raw material prices dropping 1.4% compared to a year earlier. The Producer Price Index (PPI) report reflects what companies pay for supplies such as fuel and packaging, often influencing retail prices and providing insights into inflation’s direction. In the broader context, wholesale prices have declined more rapidly than consumer prices, although they typically move in tandem over time. Senior Federal Reserve officials remain confident that inflation in the U.S. will continue to ease toward their 2% target, influenced mainly by higher interest rates restraining the economy.2

Also on Wednesday, Federal Reserve Chairman Jerome Powell surprised economists during a press conference with a more dovish stance than expected. This dovish shift became evident in the Fed’s statement and economic forecasts. The Fed adjusted its projections to include three rate cuts in 2024, up from the previously expected two in September. Additionally, the Fed softened its stance on tightening by suggesting they were considering the necessity of “any” further rate hikes.

Powell highlighted that the timing of when to begin reducing policy restraint was a topic of discussion within the Fed’s meeting. Fed officials believe that the current interest rate level is likely at or near the peak of this economic cycle. It’s important to note that the Fed’s rate cuts do not indicate an impending recession; they are a response to weakening inflation. In the event of a recession, the Fed would respond by implementing rate cuts quickly.3

In the week ending December 9, initial jobless claims in the United States decreased to 202,000, down 19,000 from the previous week, which was revised to 221,000. The 4-week moving average also dropped to 213,250, down 7,750 from last week’s revised average of 221,000. Additionally, the total number of continued weeks claimed for benefits in all programs for the week ending November 25 increased to 1,870,946, marking a rise of 291,769 from the previous week. In the same week in 2022, there were 1,586,159 weekly claims filed for benefits in all programs.4

In November, U.S. retail sales posted a solid 0.3% increase, defying expectations of a 0.1% decline predicted by economists polled by The Wall Street Journal. This positive performance marked a promising start to the holiday shopping season, indicating that the economy might not be cooling off as much as previously thought. October had seen a decline in sales for the first time in seven months. The November report suggests that retail sales are on track to outperform expectations for the holiday shopping season. Retail sales account for approximately one-third of all consumer spending and often provide insights into the economy’s overall strength. Key highlights from the report include strong sales at internet retailers like Amazon and stores selling books, music and hobby items. Americans also increased spending on clothing, furniture, healthcare and new vehicles. Sales at bars and restaurants surged by 1.6% in November, reflecting consumer confidence in personal finances and the broader economy. Restaurant sales have risen by a remarkable 11% over the past year, outpacing inflation by a wide margin. While sales at gasoline stations declined, which affected the headline retail sales figure, it was seen as positive news for consumers as lower oil prices meant reduced spending on fuel. In summary, the robust retail sales performance in November suggests that consumer spending remains strong, bolstered by a robust job market with historically low unemployment rates and rising wages, outpacing inflation. This indicates a healthy outlook for the U.S. economy.5

In November, industrial production saw a 0.2% increase, while manufacturing output experienced a 0.3% rise. This increase in manufacturing output was primarily driven by a significant 7.1% rebound in motor vehicles and parts production following the resolution of strikes at major automakers. However, manufacturing output decreased by 0.2% when excluding motor vehicles and parts. Utility output declined by 0.4%, while mining output increased by 0.3%. Compared to the previous year, total industrial production in November was 0.4% lower.Capacity utilization in November rose by 0.1 percentage point to reach 78.8%, though it remains 0.9 percentage points below the long-run average spanning from 1972 to 2022. This data suggests a mixed picture for industrial production and manufacturing, with notable recovery in the automotive sector but some contraction in other manufacturing areas and a modest increase in overall capacity utilization.6


1 https://www.bls.gov/news.release/cpi.nr0.htm

2  https://www.bls.gov/news.release/pdf/ppi.pdf

3 https://www.federalreserve.gov/monetarypolicy/files/monetary20231213a1.pdf

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

5 https://www.census.gov/retail/sales.html

6 https://www.federalreserve.gov/releases/g17/current/default.htm

Important Information:

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

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.

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