Market Update

The week concluded with positive momentum in the US and European markets, evident in the attached table. November marked a notable upswing for markets, propelled by several favorable developments: a decline in inflation, a shift in the Federal Reserve's policy stance, economic resilience despite elevated interest rates, and corporate earnings surpassing expectations. November's standout performance set a significant benchmark, with the S&P 500 surging by 8.9%, making it the best month in over a year and one of the top monthly performances in the last three decades. While a single month does not define an investment trend, the factors supporting this recent growth may persist as we approach the end of 2023.
Recent data on the core Personal Consumption Expenditures (PCE) Price Index, a crucial gauge used by the US Federal Reserve to evaluate inflation, indicated a slowdown in consumer price increases in October 2023. The overall PCE Price Index registered a year-over-year increase of 3.0%, down from the 3.4% rise observed in September. Excluding volatile food and energy prices, the core inflation rate stood at 3.5% in October, slightly lower than the 3.7% increase seen in September.
The US economy continues to showcase resilience, with the latest GDP report revealing a robust annualized growth of 5.2% in the third quarter of 2023. This outpaced the initial 4.9% estimate and the 5% forecasts, marking the most substantial expansion since the fourth quarter of 2021.
A nuanced shift in rhetoric from Federal Reserve Chair Jerome Powell may have contributed to the strong performance of both stocks and bonds at the week's conclusion. Powell acknowledged on Friday that interest rates have reached a significantly restrictive level and cautioned that further rate hikes could occur based on future economic data.
Turning to Europe, there are encouraging signs of easing inflationary pressures across the region. This week's data indicated a decrease in the inflation rate to 2.4% year-on-year in November 2023, the lowest since July 2021 and below the anticipated 2.7%, according to initial estimates. The core inflation rate also dropped to 3.6%. This data suggests that higher interest rates may be successfully mitigating inflationary pressures and has sparked speculation that the European Central Bank may not need to maintain restrictive levels for an extended period.
Positive signals also emerged from China this week as the Caixin China Manufacturing PMI climbed to 50.7 (indicating expansion) in November 2023 from 49.5 in October, surpassing forecasts of 49.8. This growth was driven by increases in output and buying levels, new orders, and a slowdown in job losses, signaling a revival in China's economy.
Looking ahead to the next week, we anticipate key data releases, including US PMI, labor market data such as non-farm payrolls, participation rate, and unemployment rate. Additionally, we expect data on US factory orders, Michigan consumer sentiment, China's balance of trade, and PMI data from the UK and Eurozone.