Cold November

December 11, 2023

To nearly no one’s surprise, and as we mentioned in our October commentary, the Fed held rates steady in its November 1st decision.1 This decision left markets relatively uninfluenced. Debt and equities were both on the rise from the start of the month. This upward trend continued into the second half of the month, when investors reacted positively to the inflation report for October. This positivity drove bond yields down and buoyed equity prices. The U.S. 10 Year Treasury Bond fell 52 basis points (bps) in November, the lowest it’s dropped in over two months. Active bonds still did well and returned 3.52%. Equities and emerging markets also both performed very well for the month. The NASDAQ Composite returned 9.05% and S&P 500 ended up 8.00%. Emerging markets, tracked by the MSCI Emerging Markets index (NDUEEGF), returned 7.91%. We believe these positive returns should be an indicator of a strengthening economy, especially after the returns we saw in October. But before we conclude that, let’s look a little closer at the state of the economy for November. 

Weekly claims for unemployment indicate that the US job market is weakening. A slowing job market is an indicator of less inflationary pressure. Although this supports the notion that the Fed may begin to cut rates, it still seems unlikely that any changes to monetary policy will be in place until late next year. While less inflationary pressure is good, a slower job market may result in more permanent job loss, which will have a rather negative effect on the economy. Gas prices have been down for more than two months, but turmoil in the middle east could escalate at any time and quickly increase oil prices. Consumer confidence has been declining for months. However, despite the weak labor market and this conflict abroad, consumer confidence has increased in November as tracked by the consumer confidence index. 

Typically, higher consumer confidence levels coincide with higher credit card use and that seems to be exactly the case here. Credit card use and credit delinquencies are at record highs.2 Reports also show that excess consumer savings have decreased. Lower savings and high credit usage seem likely to   lead to even more delinquencies than we’re already seeing. This is not sustainable for borrowers, especially with rates as high as they are right now. While creditors may benefit from these high rates, potential new homebuyers are not benefiting. Typically, high interest rates promote lower home prices because sellers are forced to accommodate the rates, but that has not been the case this fall. Home prices have stayed unusually high despite the rates and have been disproportionately influencing the US inflation rate.

Although credit use has been particularly high, consumer spending saw a small decrease in November. Analysts are attributing some of the lower spending to student loan payments. Student loan payments that have been suspended since March of 2020 became due in October. So, for the first time in three and half years, people with educational debt had to work their budget around making those payments again. A decline in consumer spending can result in businesses slowing production which would have more serious consequences for the economy. 

November seems to have set the tone for lower inflationary pressure, a tightening job market, and a rise in equities. However, we’ve also witnessed high credit use, high rates, and low savings. This mix of economic conditions is sure to stimulate a difficult decision for the next course of action by the Fed. Throughout the year we’ve witnessed the Fed tightening monetary policy and the uncertainty now lies in when they will begin to loosen policy. Fortunately, we will know more of what their plans entail after their next meeting is held in mid-December.


Hazel Allen
OPS Analyst

Published November 1, 2023; Accessed December 1, 2023

Published November7, 2023; Accessed December 1, 2023

The MSCI Emerging Markets Index consists of 23 economies including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. The MSCI is a float-adjusted market capitalization index.

The S&P 500 Index is the Standard & Poor’s Composite Index of 500stocks and is a widely recognized, unmanaged index of common stock prices.

The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and itis highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.

Basis point (BPS) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. The relationship between percentage changes and basis points can be summarized as follows: 1% change =100 basis points, and 0.01% = 1 basis point.

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