Cooler-Than-Expected Inflation Pushes Markets Higher

November 20, 2023

Market Data as of Week Ending: 11/17/2023 unless noted otherwise

Stock prices moved higher for the third consecutive week as a cooler-than-expected inflation report bolstered the belief that the Fed is finished with its rate-hiking campaign. Gains for the week were relatively broad-based, with the equally weighted version outperforming the S&P 500’s 2.31% return by over 1%. Value stocks reversed trend, outperforming their growth counterparts for the week. Small-cap companies rebounded, posting a more than 5% weekly gain that significantly outperformed their large-cap peers. All 11 major economic sectors ended the week in positive territory, led by rate-sensitive sectors in real estate, financials, and utilities. The traditionally defensive sectors in consumer staples and health care lagged. Energy underperformed after oil prices dipped into a bear market over fears surrounding global growth and demand. Foreign developed and emerging market stock prices experienced a strong week, each outperforming their domestic peers.

U.S. Treasury yields finished the week lower due to cooling inflation expectations. The 10-year U.S. treasury yield finished the week at 4.44% after experiencing the steepest single-day decline in eight months on Tuesday. The longer end of the yield curve outperformed, posting gains for the week, while shorter-duration bond returns were positive but lagged. Corporate bonds fared best over the week, slightly outperforming government and high yield. Yields ended the week lower for both U.S. Investment Grade Corporate and High Yield bonds, at 5.83% and 8.82%, respectively.

Economic data for the week was led by Tuesday’s CPI report, which showed inflation increasing less than expected at 0.2% for October due to the cost of living remaining unchanged and cheaper gas prices. The U.S. producer price index fell 0.5% in October, marking the largest decrease since April 2020. U.S. retail sales fell 0.1% in October, dropping for the first time in 7 months as consumers peeled back purchases before the holiday shopping season. The Philadelphia Fed manufacturing index rose slightly to -5.9 in November as new orders and shipments weighed on the sector. Home builder confidence fell in November for the fourth month in a row as heightened mortgage rates have impacted buyer demand. New home construction rose unexpectedly in October as buyers continue to look to new builds over the resale market. U.K. inflation rate slowed to 4.6% in October, a significant drop from the 6.7% in September, prompting markets to increase their expectations on interest rate cuts next year.

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