Weekly Market Update: US Retail Sales, Industrial Production & Housing Starts

What We Are Watching This Week

  • US Retail Sales
  • US Industrial Production
  • US Housing Starts and Home Sales

Highlights From Last Week

  • Consumer Credit
  • Consumer Price Index and Core CPI
  • Producer Price Index

Stocks had a mixed week, with large-cap growth stocks and the tech-heavy Nasdaq Composite Index performing well. Tech giants like Meta Platforms (formerly Facebook) and NVIDIA recorded solid gains. However, energy stocks lagged as oil prices retreated early in the week. The week marked the unofficial start of earnings season, featuring major banks like JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo. Bank earnings were disappointing, but one-time charges at these institutions obscured their true fourth-quarter performance. JPMorgan Chase reported earnings per share of $3.04 and revenue of $38.6 billion, missing consensus estimates. Bank of America’s results also fell short of expectations. Wells Fargo faced increased credit loss provisions, while Citigroup reported a net loss due to various one-time charges. In Europe, the STOXX Europe 600 Index remained relatively stable, with traders evaluating the possibility of prolonged higher interest rates. Major European indexes had mixed results, with Germany’s DAX and France’s CAC 40 gaining slightly, while Italy’s FTSE MIB saw modest gains, and the UK’s FTSE 100 Index declined.

Economic data releases were generally in line with expectations, but investors closely monitored inflation data, which caused some stock fluctuations following the Labor Department’s release of consumer price inflation data on Thursday.

On Monday, the Federal Reserve reported that in November, total consumer credit in the United States increased by $23.7 billion, a significant jump from the previous month’s increase of $5.8 billion, according to the Federal Reserve. This increase corresponds to an annual rate of 5.7%, up from a revised 1.4% rise in the prior month. It is worth noting that these figures are not adjusted for inflation. This surge in consumer credit represents the most significant gain since November 2022 and pushes the total consumer credit above $5 trillion for the first time in history. According to forecasts from the Wall Street Journal, economists had anticipated an $8 billion increase. Breaking down the data, revolving credit, which includes credit cards, saw a substantial increase of 17.7% after a 2.7% gain in the previous month. This is the most significant gain since March 2022. On the other hand, nonrevolving credit, which typically includes auto and student loans, increased at a rate of 1.5% following a 0.9% rise in the previous month. This category of credit is generally less volatile. It’s important to note that the Federal Reserve’s data does not encompass mortgage loans, which comprise the most significant household debt category. The sharp increase in consumer credit growth is attributed to the onset of the holiday shopping season. Consumer credit had declined due to the Federal Reserve’s aggressive rate hikes and banks tightening their lending standards. However, with expectations of the Fed cutting interest rates, consumers may be inclined to borrow at a faster pace soon.1

On Tuesday, the U.S. Census Bureau reported that in November, the U.S. trade deficit decreased by 2% to $63.2 billion, primarily due to a decline in imports. This development potentially benefits the fourth-quarter gross domestic product (GDP). In 2023, the U.S. trade deficit is expected to be the smallest in three years, contributing positively to the economy, in contrast to record deficits in 2021 and 2002, which had a negative impact on GDP. Imports dropped by 1.9% in November to $316.9 billion, a trend attributed to a shift in consumer spending from goods to services like leisure and recreation. This shift has also led to a steeper decline in imports of goods in November. However, a potential concern is that declining imports might signal consumer cutbacks, which can slow down the economy since consumer spending drives about 70% of U.S. economic activity. U.S. exports also fell by 1.9% in November to $253.7 billion but remained near all-time highs despite weak economic conditions in foreign economies. The trade deficit averaged $62.9 billion from September to November, down almost 12% from the same period in 2022. Overall, the trade deficit is not expected to impact fourth-quarter GDP significantly, which is predicted to grow up to 2.5%. However, uncertainties remain for trade in 2024, as the U.S. economy has slowed, and many foreign economies are also experiencing economic challenges. A decline in imports of consumer goods in late 2023 could indicate a potential weakening of consumer spending.2

In the week ending January 6, initial jobless benefit claims in the United States decreased by 1,000 to reach 202,000, as reported by the Labor Department. This figure marks the lowest level seen since mid-October, surpassing the expectations of economists polled by the Wall Street Journal, who had anticipated an increase to 210,000. Additionally, the prior week’s new claims were revised to show a drop of 17,000 to 203,000, slightly different from the initial estimate of an 18,000 decrease to 202,000. Notably, the number of individuals already receiving unemployment benefits from all programs in the week ending December 30 declined by 34,000 to 1.83 million, reaching its lowest point since October. These indicators suggest a healthy labor market, which supports consumer spending and contributes to economic growth, albeit at a slower pace than the previous fall.3

Consumer prices in the United States saw a slight acceleration at the end of 2023, interrupting a previous slowdown in inflation. In December, the consumer price index (CPI) increased by 0.3%, marking the largest gain in three months. The annual inflation rate also rose from 3.1% to 3.4% compared to the previous month. Similarly, the core inflation rate, considered a better predictor of future price trends, increased by 0.3% in December, aligning with economists’ expectations. However, despite this uptick, it is unlikely to change the Federal Reserve’s stance. The Fed anticipates inflation will slow to less than 2.5% in 2024 and eventually reach its 2% target by 2025. Financial markets are predicting the possibility of the first rate cut in March, but senior Fed officials have suggested that such expectations may be premature. In summary, while recent CPI data showed a slight increase in inflation, it is not expected to alter the Federal Reserve’s long-term outlook on inflation and interest rates.4

In December, the U.S. Bureau of Labor Statistics reported that the Producer Price Index (PPI) for final demand decreased by 0.1 percent, continuing a trend from the previous months when it fell by 0.1 percent in November and 0.4 percent in October. On an unadjusted basis, the PPI for final demand increased by 1.0 percent in 2023, a notable decline from the 6.4 percent increase seen in 2022. The decline in the December index for final demand can be attributed to a 0.4 percent drop in prices for final demand goods, while the index for final demand services remained unchanged. When excluding food, energy, and trade services from the index, the PPI for final demand rose by 0.2 percent in December, following slight increases of 0.1 percent in November and October. Prices for final demand, excluding these components, increased by 2.5 percent in 2023, a decrease from the 4.7 percent increase observed in 2022. 5

 WKYear to Date
Dow0.34%-0.26%
S&P5001.84%0.29%
Nasdaq3.09%-0.26%
S&P400 Mid-cap0.59%-1.90%
Russell-0.01%-3.75%
TSX0.20%0.10%
Oil-1.40%1.60%
  1. https://www.federalreserve.gov/releases/g19/current
  2. https://www.bea.gov/sites/default/files/2024-01/trad1123.pdf
  3. https://www.dol.gov/ui/data.pdf
  4. https://www.bls.gov/news.release/pdf/cpi.pdf
  5. https://www.bls.gov/news.release/pdf/ppi.pdf

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 Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors. 

Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds. 

The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions. 

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