Market Update - November 18

The major indices settled the session little changed on the heels of Friday's rally. Early selling pressure, driven in part by a sense that the market is due for some consolidation, had stocks modestly lower right out of the gate. The major indices climbed off their worst levels, though, after the S&P 500 found support on a test of the 4,400 level, hitting 4,393 at its low.

There was a general lack of conviction from both buyers and sellers ahead of Tuesday's release of the October Consumer Price Index. Boeing (BA) was a standout winner in the DJIA after news that it received multiple orders at the Dubai Airshow and a Bloomberg report that China is considering ending its freeze of Boeing with a new 737 Max deal.

The move higher in the stock market also coincided with Treasuries pulling back from intraday high yields.

Monday's economic data was limited to the October Treasury Budget, which showed a deficit of $66.6 billion compared to a deficit of $87.9 billion in the same period a year ago. The deficit in October resulted from outlays ($470.0 billion) exceeding receipts ($403.4 billion). The Treasury Budget data is not seasonally adjusted so the October 2023 deficit cannot be compared to the September deficit of $170.7 billion.

The major indices all closed with sizable gains, ending near their highs of the day on heavier than average volume. The S&P 500, which flirted with the 4,100 level on October 27, was trading above 4,500 at its high before settling the session just below that level. The Russell 2000 surged 5.4%, which left the index positive for the year.

Equities reacted to a sharp drop in rates on the heels of the better-than-expected October Consumer Price Index (CPI), which corroborated the market's thinking that the Fed is done raising rates.

The fed funds futures market priced out the probability of any additional rate hikes by the Fed, and now sees a 65.4% probability of the first rate cut in May 2024, according to the CME FedWatch Tool.

Buying activity was broad based with just about everything coming along for the rally. Home Depot (HD) was an individual standout after reporting pleasing Q3 results.

Reviewing Tuesday's economic data:

• October CPI 0.0% (Briefing.com consensus 0.1%); Prior 0.4%; October Core CPI 0.2% (Briefing.com consensus 0.3%); Prior 0.3%
  • The key takeaway from the report is that inflation is moving in the right direction, and because it is, the market will continue to believe that the Fed won't be moving the target range for the fed funds rate any higher.

The stock market had a decent showing on Wednesday. The major indices added modest gains, continuing a rally that began after Tuesday's CPI data. The S&P 500 closed just above the 4,500 level with a 0.2% gain, which was still impressive considering the S&P 500 is up 9.4% since October 27.

The thinking that the Fed is done raising rates contributed to the positive bias following another batch of economic data that seemed consistent with a soft landing scenario for the economy.

The positive bias was also supported by a huge gain in Target (TGT) following its better-than-expected earnings results and a lingering fear of missing out on further gains during a seasonally strong time of year for the market.

In spite of today's pleasing economic data, Treasuries experienced some selling after yesterday's big gains.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index 2.8%; Prior 2.5%
• October Retail Sales -0.1% (Briefing.com consensus -0.3%); Prior was revised to 0.9% from 0.7%; October Retail Sales ex-auto 0.1% (Briefing.com consensus -0.2%); Prior was revised to 0.8% from 0.6%
  • The key takeaway from the report is that it isn't adjusted for inflation, so it is clear to see that consumer demand for goods in October fell off noticeably from September.
• October PPI -0.5% (Briefing.com consensus 0.1%); Prior was revised to 0.4% from 0.5%; October Core PPI 0.0% (Briefing.com consensus 0.3%); Prior was revised to 0.2% from 0.3%
  • The key takeaway from the report is that it reflects a sharp moderation in prices at the wholesale level, which should remain relatively subdued barring a future jump in energy prices, as the index for unprocessed goods for intermediate demand was down 1.4%.
• November Empire State Manufacturing 9.1 (Briefing.com consensus -5.0); Prior -4.6
• September Business Inventories 0.4% (Briefing.com consensus 0.4%); Prior 0.4%

The S&P 500, which closed above 4,500, and the Nasdaq Composite eked out slim gains thanks to support from mega cap stocks. The broader market, meanwhile, experienced some normal consolidation, but losses were modest compared to the size of recent gains.

Big negative reactions to disappointing earnings and/or guidance from Walmart (WMT), Cisco (CSCO), and Palo Alto Networks (PANW) helped create an excuse for market participants to take profits.

Oil prices slid ($72.92/bbl, -3.64, -4.8%) in response to slowdown worries and technical selling after closing yesterday below their 200-day moving average.

Reviewing Thursday's economic data:

• Weekly Initial Claims 231K (Briefing.com consensus 220K); Prior was revised to 218K from 217K; Weekly Continuing Claims 1.865 mln; Prior was revised to 1.833 mln from 1.834 mln
  • The key takeaway from the report is that it fits the Fed's preferred script of seeing some softening in the labor market. Initial claims are at their highest level since August and continuing jobless claims are their highest level since November 2021.
• October Export Price Index -1.1%; Prior was revised to 0.5% from 0.7%
• October Export Prices ex-ag. -1.0%; Prior was revised to 0.7% from 1.0%
• October Import Price Index -0.8%; Prior was revised to 0.4% from 0.1%
• October Import Prices ex-oil -0.2%; Prior -0.2%
• November Philadelphia Fed Index -5.9 (Briefing.com consensus -7.5); Prior -9.0
• October Industrial Production -0.6% (Briefing.com consensus -0.4%); Prior was revised to 0.1% from 0.3%; October Capacity Utilization 78.9% (Briefing.com consensus 79.4%); Prior was revised to 79.5% from 79.7%
  • The key takeaway from the report is that it was adversely affected by the UAW strike, which has since ended. Motor vehicle and parts production, therefore, should turn into a tailwind for November industrial production, which is a thought that takes some of the sting out of the disappointing headline number for October.
• November NAHB Housing Market Index 34 (Briefing.com consensus 40); Prior 40

Friday's trade had the major indices confined to relatively narrow ranges. Stocks closed the session off their highs, which had the S&P 500 above the 4,500 level. The Russell 2000 paced index level gains, jumping 1.4%, thanks to strength in its energy components as oil prices rebounded.

Relative weakness in some mega cap stocks kept the other major indices in check. The market-cap weighted S&P 500 rose 0.1% while the Invesco S&P 500 Equal Weight ETF (RSP) closed with a 0.5% gain.

Big gains in Ross Stores (ROST) and Gap (GPS) after they reported earnings helped support the broader market.

Applied Materials (AMAT) was a losing standout after reporting earnings, sinking with a Reuters report that it is the subject of a DOJ criminal probe over shipments to China's top chipmaker, SMIC, weighing heavily on sentiment.

Reviewing Friday's economic data:

• Total housing starts increased 1.9% month-over-month, but were down 4.9% year-over-year, to a seasonally adjusted annual rate of 1.372 million (Briefing.com consensus 1.365 million). Building permits -- a leading indicator -- were up 1.1% month-over-month, and down 4.4% year-over-year, to a seasonally adjusted annual rate of 1.487 million (Briefing.com consensus 1.445 million).
  • The key takeaway from the report is that building activity, particularly for the much needed single-family unit, remains subdued in the face of higher costs and financing rates. Single-unit starts were up just 0.2% month-over-month while single-unit permits rose 0.5% month-over-month. The number of single-family units under construction at the end of the period was down 0.6% month-over-month and the number of single-family units completed was down 0.9% month-over-month.