​The Markets
 
In November, investors were more optimistic than consumers.
 
At the start of November, investors were decidedly bearish. During the week of November 1, the AAII Investor Sentiment Survey found that about 50 percent of respondents were pessimistic about the prospects for stocks over the next six months, and about 24 percent were bullish. The current historic averages are 31 percent bearish and 37.5 percent bullish. (The remainder are neutral.)
 
Many believe the survey is a contrarian indicator, meaning that stocks are likely to rise when investors are bearish and fall when investors are bullish. November offered some data to support the theory as United States stocks trended higher during the month.
 
As stock markets gained, participants in the AAII survey became more bullish. The Thanksgiving week survey found that more than 45 percent of respondents were feeling bullish, and as we already mentioned, just 24 percent were feeling bearish. Quite a reversal from four weeks earlier.
 
Consumers were considerably less optimistic. While sentiment improved from last year, it dropped almost 4 percent from October to November, according to the University of Michigan Consumer Sentiment Survey. It was the fourth consecutive month of declining sentiment.
 
“November’s reading reflects a balance of factors, some of which improved while others worsened. More-favorable current assessments and expectations of personal finances were offset by a notable deterioration in expected business conditions…Younger and middle-aged consumers exhibited strong declines in economic attitudes this month, while sentiment of those age 55 and older improved from October,” wrote Surveys of Consumers Director Joanne Hsu.
 
The survey found consumers expect inflation to average 4.5 percent over the next 12 months, and 3.2 percent over the longer term even though inflation has slowed significantly and was just 3.2 percent over the last 12 months. Despite recent declines, consumers are worried inflation could change course.
 
Stocks moved higher last week as many investors remained confident the Federal Reserve was done raising rates. Some anticipate rate cuts early next year, reported Barron’s. Bond markets weren’t so sure, though, and U.S. Treasury yields moved broadly higher during the week.

Guidance Wealth will be closed for Thanksgiving on Thursday, November 23rd.  Friday, November 24th, our office will be open 9:30am - 1:00pm. 

The Markets
 
Is it done? (We’re not talking about the turkey.)
 
Last week, investors enthusiastically embraced the idea that the Federal Reserve (Fed) could be done raising rates – and that it might even begin to lower them. As conviction about the possibility of rate cuts increased, stock and bond markets rallied, reported Koh Gui Qing and Dhara Ranasinghe of Reuters.
 
The catalyst was easing inflation.
 
Last week, the Consumer Price Index indicated that inflation in the United States was flat from September to October, and 3.2 percent for the preceding 12-month period. Core inflation, which excludes volatile food and energy prices, also slowed, up 0.2 percent month-to-month and 4 percent year-over-year.
 
The change in headline inflation was largely due to lower energy prices, which were down 2.5 percent in October and down 4.5 percent for the preceding 12-month period. In addition, the prices of gasoline and fuel oil dropped. The cost of shelter also grew more slowly – up 0.3 percent in October compared to up 0.6 percent in September – but it was 6.7 percent higher year-over-year.
 
There were other signs the U.S. economy may be softening, too. Earlier in the month, the October employment report saw the unemployment rate rise and hiring slow. Last week, the number of people filing unemployment claims increased more than expected, and continuing claims rose to the highest level since 2021, according to Angela Palumbo of Barron’s.
 
The market rallies lost some steam after Boston Fed President Susan Collins indicated she wasn’t yet ready to call the inflation fight by ruling out additional rate increases, reported Reuters. It was an important reminder. While a slower pace of overall price increases is great news, inflation remains well above the Fed’s two percent target.
 
Last week, major U.S. stock indices moved higher with the Standard & Poor’s 500 Index gaining 2.2 percent, the Dow Jones Industrial Average advancing 1.9 percent, and the Nasdaq Composite up 2.4 percent, according to Jacob Sonenshine of Barron’s. Treasury yields moved lower across all maturities.

Guidance Wealth will be closed for Thanksgiving on Thursday, November 23rd.  Friday, November 24th, our office will be open 9:30am - 1:00pm.
 
The Markets
 
Earnings grew in the third quarter.
 
Four times a year, during earnings season, publicly traded companies report how well they performed during the previous quarter. The strength of corporate earnings – also known as bottom-line profits – is one of the economic indicators that investors watch closely.
 
When companies consistently grow earnings, investors feel confident they may continue to do so. Consequently, solid earnings can help lift a company’s share price. The opposite is also true. When earnings are lower than expected, investors may lose confidence in a company or look for better relative opportunities. As a result, weak earnings may lead to a company’s share price falling.
 
Companies in the Standard & Poor’s 500 (S&P 500) Index have been in an “earnings recession.” That occurs when year-over-year earnings decline for two consecutive quarters. The earnings of companies in the S&P 500 retreated for three consecutive quarters – from October 2022 through June 2023, reported John Butters of FactSet.
 
Last week, with 92 percent of companies in the S&P 500 reporting on third-quarter performance, overall earnings were up 4.1 percent, year-over-year. The earnings recession is over. While that’s positive news, concerns about slowing economic growth and the possibility of recession caused many analysts to lower estimates for fourth-quarter earnings by more than usual, reported FactSet.
 
Year-over-year earnings growth for the fourth quarter is estimated to be 3.2 percent, down from estimates of 8 percent at the end of September. Analysts also lowered forecasts for the first half of 2024. They expect earnings growth to be 6.7 percent year-over-year in the first quarter, and 10.5 percent year-over-year in the second quarter.
 
Downward earnings revisions reflect current market uncertainty. Last week, in a Bloomberg opinion piece, economist Mohamed El-Erian explained that while many hope for a soft economic landing, “There are multiple other plausible scenarios for the trajectory of interest rates...frustrating as it is for many of us seeking clarity, there is a range of possible reasons why policy rates may decline in 2024, and their economic and market implications can vary significantly. Conversely, there are also reasons why rates may remain elevated for most of next year.”
 
Last week, investors appeared to embrace the idea that a soft landing and lower rates may be ahead. Major U.S. stock indices gained led by big technology and growth stocks, while the Treasury market remained relatively calm. At week’s end, the yield on the benchmark 10-year U.S. Treasury was 4.6 percent.
 

​The Markets
 
Will there be a year-end rally?
 
Last week, there was a lot of speculation about whether the United States will see a year-end stock market rally. Some say yes, and some say no.
 
For example, at Bank of America, “Chief investment strategist Michael Hartnett broke from his usual bearish view to say technicals no longer stand in the way of a year-end rally for the S&P 500 Index. Savita Subramanian, head of U.S. equity and quantitative strategy and an optimist on stocks this year…[said] a contrarian indicator from the bank is also close to offering a buy signal…,” reported Alexandra Semenova and Farah Elbahrawy of Bloomberg.
 
In contrast, Morgan Stanley’s Chief U.S. Equity Strategist Mike Wilson thinks a fourth-quarter rally is unlikely. One bearish sign is that some higher-quality mega-cap growth stocks traded lower even after reporting strong earnings. In addition, “given the significant weaknesses already apparent in the average company earnings and the average household finances, we think it will be very difficult for these mega-cap companies to avoid these headwinds too...Finally, with interest rates so much higher than almost anyone predicted six months ago, the market is starting to call into question the big valuations at which these large cap winners trade.”
 
The bottom line is no one knows with any certainty what the future will bring.
 
Instead of trying to predict market lows and highs, we help investors manage risk by building well-allocated and diversified portfolios that are designed to help them meet their financial goals. These portfolios typically include a mix of stocks, bonds and other assets. By holding a variety of assets that respond differently to market conditions, investment portfolios may provide more consistent and less volatile returns over time. It’s important to remember, though, that while diversification is a valuable tool, it does not ensure a profit or prevent a loss. 
 
After three months of weakness, investors cheered last week’s gains in U.S. stock and bond markets. Major U.S. stock indices moved higher over the week, and yields on U.S. Treasuries moved lower.