Broker Check

Weekly Market Update November 17, 2023

November 18, 2023

The November rally maintained its course this week, with the S&P, DOW and Nasdaq all finishing over 2% higher.  On Tuesday the market was greeted with more positive economic data as it pertains to inflation, with the Core CPI (Consumer Price Index) falling to 4.0% vs a 4.1% forecast.  The “Headline” CPI (which includes food and energy) also came out lower than expected at 3.2% (vs 3.3% forecast).  Many forecasters are now putting wagers on an interest rate CUT for early next year.  UBS, for example, is forecasting that the Fed will cut interest rates by 275 basis points (or 2.75%) next year.

 

The chart below shows the trend of inflation measured by the Headline CPI in orange and the Core CPI in blue.

 

 

With potentially lower rates coming in 2024, there is substantial upside in many areas of the market that have been left for dead over the past year and a half.  Most of the gains we’ve seen in the S&P 500 have been driven by a handful of stocks, commonly called the “Magnificent Seven.”  These are Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.  The following graph from Goldman shows the performance of  1) The “Magnificent Seven,” (2) The S&P 500, and (3) The S&P 493 (S&P 500 excluding the Magnificent Seven).

 

We see an opportunity for several sectors to “make up ground” in what could very likely be a loosening cycle (interest rate cuts) in 2024.  We see opportunities in sectors such as Financials, Real Estate, Utilities, and Small Caps (among others).  This is why we continue to build and add to positions in names outside of the Magnificent Seven, as we think there is potential to narrow the gap between these names and those seven outperformers.

 

I will leave you with one last chart that outlines the % distance from all-time lows (orange bar) and the distance from all-time highs (dark blue bar).

 

 

There will be bumps in the road between now and whenever the Fed does start cutting rates.  The market will not move in a straight line.  There will be data releases that will be a cause for concern, and we will see market pullbacks.  But the longer-term narrative has become much more friendly for equity investors and November could prove to be a month for “green shoots.”

 

 

 

 

 

Have a great weekend,

 

Marshall