HWM Market Recap - December 2023
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For about a year and a half, we have discussed in these monthly newsletters the roller coaster ride that is the stock market and the macroeconomy. Needless to say, with everything going on in the world, it is difficult to see us disembarking from that roller coaster any time soon. In our newsletter from last month, we delved deeper into three factors of the economy we are watching as we approach the end of the year – the housing market, general business optimism, and Consumer Sentiment. This month, we wanted to revisit some of those items as well as highlight a few others to illustrate why we remain defensive heading into the new year.
Housing showed signs of improving earlier in the year, but existing home sales are retracting. With today's high mortgage rates and home prices remaining elevated, it continues to be one of the most unaffordable times to own a home in U.S. history, leaving activity seemingly at a standstill overall. Moreover, commercial real estate finds itself in a difficult spot as companies struggle to balance requirements for employees to work in the office despite unrelenting demand for the continuance of the pandemic work-from-home trend. This has led to an increase in empty building space and a decrease in commercial property prices.
Wall Street and consumers remain hyper-focused on inflation data, which improved slightly in November. However, in looking at inflation expectations, the market believes this improvement could be temporary. In the first half of the year, consumers showed signs of optimism about the economy as inflation slowed. Since then, there has been a substantial uptick in future inflation expectations as consumers are discouraged by prolonged inflation. Therefore, despite the recent easing of the Consumer Price Index, inflation expectations will likely pressure the Federal Reserve to leave interest rates elevated. It is too early to say that the Fed is, in fact, done raising interest rates. However, the Fed has the difficult job of finding the Goldilocks zone of not leaving a legacy of contributing to long-term inflation and leaving interest rates too high for too long, causing a hard landing. In the meantime, the market shows signs that rates will likely stay high well into 2024.
It is fairly common to see stocks move higher in December – it is referred to as a 'Santa Claus Rally.' But it is important not to mistake this trend for economic optimism. Our macroeconomic indicators continue to show conflicting signs of what is to come. To say that all of this sounds challenging to navigate would be an understatement. This battle between bullish and bearish investors continues to be one of the most difficult we have seen to anticipate. So, while there is without question evidence of improvement and resilience, the greatest strength of safety-first investors is not getting caught up in short-term economic movements and staying true to long-term investment strategies.
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Monthly Changes in Indices
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Monthly Performance By Sector
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The Consumer Price Index (CPI) remained unchanged in October after increasing by 0.4% in September. On a yearly basis, the CPI has been growing by 3.2% as of October, down from 3.7% in September. Meanwhile, the 'Core' CPI, which does not include food and energy prices, rose at its slowest rate since September 2021.
The Personal Consumption Expenditures Price Index (PCE) — the Federal Reserve's preferred inflation gauge — increased by less than 0.1% in October. Over the last twelve months, the index rose by 3%, down from the 3.4% the prior month. Core PCE, which excludes food and energy prices, increased 3.5% from a year ago, slowing from September's 3.7%.
As of November 30th, 2023, the average 30-year fixed rate mortgage has fallen for five straight weeks to 7.22%. However, this is still higher than a year ago, on December 1st, 2022, at 6.49%. Despite these movements, mortgage rates remain the highest they have been in over two decades.
The Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit shows that household debt has risen to $17.29 Trillion (up 1.3% since Q2). These debts include mortgage balances ($12.14 trillion), credit card balances ($1.08 trillion), student loan balances ($1.6 trillion), and auto loan balances ($1.6 trillion).
The Conference Board's Consumer Confidence Index and Expectations Index (which looks at consumers' short-term view of income, business, and labor market conditions) both ticked up in November, while the Present Situation Index ticked down slightly. Despite the improvement in the November reading of the Expectations Index, for three consecutive months, it has remained below a level that historically signals an impending recession within the coming year. While consumer fears about an upcoming recession moderated slightly, around two-thirds of surveyed consumers still see a recession as "somewhat" or "very likely" to occur within the next twelve months.
According to the latest Employment Situation Summary from the Bureau of Labor Statistics, the U.S. added just 150,000 nonfarm jobs in October – a sharp decline from the gain of 297,000 in September. Additionally, the unemployment rate rose to 3.9% – the highest it has been since January 2022. The Job Openings and Labor Turnover Survey (JOLTS), which tracks job openings, hires, and separations, showed little changes in September in each of those three categories.
U.S. retail sales were down in October for the first time in seven months – even though it was a marginal decline. Retail sales decreased by 0.1% between September and October but rose 2.5% from October 2022.
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Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.
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