Month: January 2024

The Markets (as of market close January 12, 2024)

Wall Street saw stocks close higher last week, despite dampening hopes of an interest rate reduction. Each of the benchmark indexes listed here rebounded from a slow start to the year by adding value last week. Some major financial companies posted lower-than-expected fourth-quarter earnings. Information technology and communication services led the sectors, while energy and utilities underperformed. Ten-year Treasury yields slipped lower. Crude oil prices retreated marginally. The dollar was flat, while gold prices ticked higher.

Stocks closed sharply higher last Monday, led by a rally in tech shares. The Nasdaq jumped 2.2% as chip makers saw their stocks surge while megacaps outperformed. The Russell 2000 added 1.9%, followed by the S&P 500 (1.4%), the Dow (0.6%), and the Global Dow (0.3%). Ten-year Treasury yields dipped to 4.00%. Crude oil prices settled at $71.01 per barrel, down 3.80%. The dollar and gold prices also declined.

Tech shares extended their rally to begin last Tuesday but lost momentum by the end of the day. The Nasdaq inched up 0.1%, the only benchmark index to close above water, while the remaining indexes tumbled lower. The small caps of the Russell 2000 lost 1.1%, the Global Dow fell 0.5%, while the large caps of the Dow (-0.4%) and the S&P 500 (-0.2%) dipped lower. Long-term bond values, which have fluctuated marginally during the first few weeks of the new year, slipped lower last Tuesday, sending yields on 10-year Treasuries up to 4.01%. Crude oil prices rose 2.0% to $72.17 per barrel. The dollar gained 0.3%, while gold prices were flat.

Wednesday saw stocks advance, led by surging tech shares. The Nasdaq gained 0.8%, followed by the S&P 500 (0.6%) and the Dow (0.5%), while the Russell 2000 and the Global Dow inched up 0.1%. Ten-year Treasury yields ended the session marginally higher at 4.03%. Crude oil prices declined 1.3% to $71.28 per barrel. The dollar and gold prices slid 0.2%.

Equities took a marginal step back last Thursday following news that consumer prices rose a bit more than expected (see below), dampening the prospects of an interest rate cut any time soon. The Russell 2000 dropped 0.8%, the S&P 500 and the Global Dow dipped 0.1%, while the Dow and the Nasdaq ended the day flat. Ten-year Treasury yields closed at 3.97%, down 5.3 basis points. Crude oil prices rose 2.1% to $72.85 per barrel. The dollar was unchanged, while gold prices advanced 0.3%.

Stocks closed mixed on Friday with the Global Dow (0.3%) and the S&P 500 (0.1%) closing marginally higher, the Nasdaq was flat, while the Dow (-0.3%) and the Russell 2000 (-0.2%) declined. Ten-year Treasury yields ticked lower to close at 3.95%. Crude oil prices rose 1.1% to $72.78 per barrel. The dollar gained 0.2%, while gold prices rose 1.6%.

Stock Market Indexes

Market/Index	2023 Close	Prior Week	As of 1/12	Weekly Change	YTD Change
DJIA	37,689.54	37,466.11	37,592.98	0.34%	-0.26%
Nasdaq	15,011.35	14,524.07	14,972.76	3.09%	-0.26%
S&P 500	4,769.83	4,697.24	4,783.83	1.84%	0.29%
Russell 2000	2,027.07	1,951.14	1,950.96	-0.01%	-3.75%
Global Dow	4,355.28	4,336.25	4,341.83	0.13%	-0.31%
fed. funds target rate	5.25%-5.50%	5.25%-5.50%	5.25%-5.50%	0 bps	0 bps
10-year Treasuries	3.86%	4.04%	3.95%	-9 bps	9 bps
US Dollar-DXY	101.39	102.44	102.43	-0.01%	1.03%
Crude Oil-CL=F	$71.30	$73.73	$72.80	-1.26%	2.10%
Gold-GC=F	$2,072.50	$2051.30	$2,052.20	0.04%	-0.98%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• In what may dampen hopes for an interest rate cut by the Federal Reserve, the Consumer Price Index rose 0.3% in December, up from 0.1% in November. The 12-month rate also increased 0.3 percentage point to 3.4%. In December, prices excluding food and energy rose 0.3%, unchanged from the November figure. For the year ended in December, the CPI excluding food and energy rose 3.9%, 0.1 percentage point under the 12-months ended in November. Prices for shelter (0.5%) continued to rise in December, contributing over half of the monthly increase. In December, energy prices rose 0.4% after declining 2.3% in November, while prices for food increased 0.2%, unchanged from November. In 2023, food prices rose 2.7%, energy prices fell 2.0% (gasoline prices declined 1.9%), and prices for shelter rose 6.2%.
• Producer prices were lower than expected in December after declining 0.1% in December. Over the last 12 months ended in December, producer prices rose 1.0%. Prices excluding food and energy were unchanged in December but up 1.8% for the year. Producer prices excluding food, energy, and trade services rose 0.2% last month and 2.5% over the last 12 months. Prices for goods fell 0.4% in December, the third consecutive monthly decline. In December, nearly 60.0% of the decrease in prices for goods could be traced to a 1.2% drop in prices for energy. Prices for services remained unchanged in December for the third straight month.
• The Treasury monthly budget deficit for December 2023 was $129.0 billion, $185.0 billion less than the November deficit but $44.0 billion above the December 2022 deficit. For the year 2023, the total deficit was $1,784.0 trillion.
• The goods and services trade deficit was $63.2 billion in November, down $1.3 billion, or 2.0%, from the October deficit. November exports were $253.7 billion, $4.8 billion, or 1.9%, less than October exports. November imports were $316.9 billion, $6.1 billion, or 1.9%, less than October imports. Year to date, the goods and services deficit decreased $161.8 billion, or 18.4%, from the same period in 2022. Exports increased $28.8 billion, or 1.0%. Imports decreased $133.0 billion, or 3.6%.
• The national average retail price for regular gasoline was $3.073 per gallon on January 8, $0.015 per gallon lower than the prior week’s price and $0.186 less than a year ago. Also, as of January 8, the East Coast price decreased $0.012 to $3.075 per gallon; the Midwest price fell $0.027 to $2.768 per gallon; the Gulf Coast price increased $0.023 to $2.676 per gallon; the Rocky Mountain price fell $0.021 to $2.765 per gallon; and the West Coast price decreased $0.043 to $4.072 per gallon.
• For the week ended January 6, there were 202,000 new claims for unemployment insurance, a decrease of 1,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended December 30 was 1.2%, a decrease of 0.1 percentage point from the previous week’s rate, which was revised up by 0.1 percentage point. The advance number of those receiving unemployment insurance benefits during the week ended December 30 was 1,834,000, a decrease of 34,000 from the previous week’s level, which was revised up by 13,000. States and territories with the highest insured unemployment rates for the week ended December 23 were Montana (2.4%), New Jersey (2.4%), Alaska (2.3%), Minnesota (2.2%), California (2.1%), Massachusetts (2.1%), Rhode Island (2.1%), Illinois (1.9%), and Washington (1.9%). The largest increases in initial claims for unemployment insurance for the week ended December 30 were in Pennsylvania (+4,545), New Jersey (+3,187), Michigan (+2,769), Massachusetts (+2,751), and Connecticut (+2,020), while the largest decreases were in California (-8,062), Texas (-5,821), Missouri (-2,308), Florida (-1,408), and Oregon (-1,236).

Eye on the Week Ahead

There’s a fairly substantial amount of important economic data released this week. Wednesday includes the December reports on retail sales, import and export prices, and industrial production. The end of the week focuses on the real estate sector with the release of the latest data on housing starts and the December report on existing-home sales.

The Markets (as of market close January 5, 2024)

After pulling off a surprisingly strong rally in the fourth quarter of 2023, the stock market took a tumble during the first week of the new year. All five of the indexes listed here ended lower, with the Russell 2000 and the Nasdaq seeing the largest losses. Information Technology and Consumer Discretionary were the two worst-performing sectors, while health care, utilities, and energy posted decent gains. A solid jobs report pushed ten-year Treasury yields above 4.0% on Friday. Oil prices were volatile but ended the week 3.4% higher, primarily due to rising tensions in the Red Sea.

Investors were met with disappointment on the first trading day of 2024. The Nasdaq dropped 1.6% last Tuesday, followed by the Russell 2000 (-0.7%) and the S&P 500 (-0.6%). The Global Dow dipped 0.3% while the Dow eked out a tiny gain (0.1%). The yield on 10-year Treasuries rose to 3.94%, and the dollar had its biggest daily advance since March. Crude oil prices slid 1.6% to about $70 per barrel.

Stocks stumbled for the second session in a row on Wednesday, with all of the major indexes listed below closing in the red. The small caps of the Russell 2000 suffered the worst loss (-3.4%) since March. The Nasdaq fell 1.2%, followed by the Global Dow (-0.9%), the S&P 500 (-0.8%), and the Dow (-0.8%). The 10-year Treasury yield ticked down to 3.90%. Crude oil prices spiked more than 3.7% as troubling news continued to flow out of the Middle East. The price of gold fell, and the dollar advanced.

On Thursday, the Nasdaq suffered its fifth straight day of losses (-0.6%) and the S&P 500 posted its fourth decline in a row (-0.3%). The Russell 2000 ticked down a bit (-0.1%) and the Dow was flat, but the Global Dow notched a 0.4% gain. Eight of the market sectors experienced declines, while health care, financials, and industrials managed gains. Gold advanced, crude oil fell, and the dollar was little changed.

Friday was somewhat uneventful on Wall Street, but four of the five stock indexes listed below ended slightly higher after multiple days of declines. The Global Dow moved up 0.3%, followed by the S&P 500 (0.2%). The Nasdaq and the Dow each ticked up 0.1%, while the Russell 2000 dipped 0.3%. Crude oil prices rose more than 2.0%. Gold prices and the dollar were mostly flat.

Stock Market Indexes

Market/Index	2023 Close	Prior Week	As of 1/5	Weekly Change	YTD Change
DJIA	37,689.54	37,689.54	37,466.11	-0.59%	-0.59%
Nasdaq	15,011.35	15,011.35	14,524.07	-3.25%	-3.25%
S&P 500	4,769.83	4,769.83	4,697.24	-1.52%	-1.52%
Russell 2000	2,027.07	2,027.07	1,951.14	-3.75%	-3.75%
Global Dow	4,355.28	4,355.28	4,336.25	-0.44%	-0.44%
fed. funds target rate	5.25%-5.50%	5.25%-5.50%	5.25%-5.50%	0 bps	0 bps
10-year Treasuries	3.86%	3.86%	4.04%	18 bps	18 bps
US Dollar-DXY	101.39	101.39	102.44	1.04%	1.04%
Crude Oil-CL=F	$71.30	$71.30	$73.73	3.41%	3.41%
Gold-GC=F	$2,072.50	$2,072.50	$2051.30	-1.02%	-1.02%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• According to the Labor Department’s closely watched payrolls report, there were 216,000 new jobs added in December, up from 173,000 in November. The change in employment for October and November was revised downward, such that the combined total for those months was 71,000 lower than previously reported. Employment continued to grow in government, health care, social assistance, and construction, while transportation and warehousing shed jobs. For all of 2023, employers added 2.7 million jobs, less than the 4.8 million added in 2022, but more than in the several years preceding the pandemic. The unemployment rate and number of unemployed persons were essentially unchanged at 3.7% and 6.3 million, respectively, in December. One year ago in December 2022, the jobless rate was 3.5% and there were 5.7 million unemployed persons. In December 2023, the labor force participation rate, at 62.5%, and the employment-population ratio, at 60.1%, both fell by 0.3 percentage point. Average hourly earnings rose by $0.15, or 0.4%, to $34.27 in December. Over the past 12 months, average hourly earnings have increased by 4.1%. The average workweek edged down by 0.1 hour to 34.3 hours in December.
• According to the S&P Global US Manufacturing Purchasing Managers’ Index™, the manufacturing sector slipped further into contraction in December. Output declined and the downturn in new orders picked up speed. A decrease in total new sales reflected weakening demand conditions, which also led to the third successive monthly drop in employment. Inflationary pressures intensified, as cost burdens rose sharply and selling prices increased at the quickest pace since April. Nevertheless, business confidence rose to a three-month high.
• The pace of expansion in the U.S. service sector picked up marginally in December, driven by the fastest upturn in new business since June. The S&P Global US Services PMI™ rose to 51.4 in December, up from 50.8 in November. Employment growth was the quickest in six months. Service providers reported a steeper rise in input costs resulting from higher wages and food prices, but selling prices increased at one of the weakest rates in over three years.
• According to the latest Job Openings and Labor Turnover Summary, the number of job openings in November was little changed at 8.8 million, the lowest level since March 2021. In November, the number of hires decreased to 5.5 million (-363,000), and the number of separations decreased to 5.3 million (-292,000). The quits rate ticked down to 3.5% (-157,000), the lowest level since September 2020. The moderation in quits in recent months may indicate that Americans are less confident in their ability to find new or better-paying jobs. All in all, the report seemed to confirm the Fed’s expectation that a cooling labor market will limit wage increases and help slow inflation.
• The national average retail price for regular gasoline was $3.089 per gallon on January 1, $0.027 per gallon lower than the prior week’s price and $0.134 less than a year ago. Also, as of January 1, the East Coast price decreased $0.030 to $3.087 per gallon; the Midwest price fell $0.063 to $2.795 per gallon; the Gulf Coast price decreased $0.031 to $2.653 per gallon; the Rocky Mountain price fell $0.075 to $2.786 per gallon; and the West Coast price increased $0.064 to $4.115 per gallon.
• For the week ended December 30, there were 202,000 new claims for unemployment insurance, a decrease of 18,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended December 23 was 1.2%, a decrease of 0.1 percentage point from the previous week’s unrevised rate. The advance number of those receiving unemployment insurance benefits during the week ended December 23 was 1,855,000, a decrease of 31,000 from the previous week’s level, which was revised up by 11,000. States and territories with the highest insured unemployment rates for the week ended December 16 were New Jersey (2.4%), Alaska (2.2%), Montana (2.2%), California (2.1%), Minnesota (2.1%), Massachusetts (1.9%), Rhode Island (1.9%), Washington (1.9%), Illinois (1.8%), New York (1.8%), Pennsylvania (1.8%), and Puerto Rico (1.8%). The largest increases in initial claims for unemployment insurance for the week ended December 23 were in California (+4,911), New Jersey (+4,713), Missouri (+4,684), Ohio (+2,712), and Pennsylvania (+2,329), while the largest decreases were in Texas (-1,212), Oklahoma (-539), West Virginia (-406), Colorado (-335), and Utah (-262).

Eye on the Week Ahead

The market will likely be attuned to two important inflation measures to be released later this week. The Consumer Price Index (CPI) for December will be available on Thursday, followed by the Producer Price Index (PPI) on Friday. The CPI increased 0.1% in November and saw its annual rate drop to 3.1%. The PPI was unchanged in November and increased just 0.9% over the previous 12 months.

Overview

The year 2023 was dominated by inflation and the Federal Reserve’s restrictive policy in response to it. The year began with inflation at about 6.5%, with the Fed raising interest rates despite fears of rising unemployment and an economic recession. But while the focus remained on inflation, several other events occurred during the year, including a political battle over the debt ceiling and a potential government shutdown; the collapse of several banks; labor strikes; and unrest in the Middle East.

In March 2022, the Federal Reserve began to aggressively raise interest rates as part of a restrictive policy aimed at reining in escalating inflation. In 2023, there were signs that the Fed’s monetary policy was paying off. Price growth slowed, apparently without triggering a recession.

The personal consumption expenditures price index was 5.4% in January, while core prices, excluding food and energy, were 4.7%. Other than a moderate surge during the summer, the PCE price index trended lower, with the last reading at 2.6% (core prices were 3.2%) for the 12 months ended in November.

While inflation has turned lower, it remained above the Fed’s 2.0% target. However, the progress in moderating price pressures allowed the Fed to refrain from further interest rate hikes since July. In addition, recent Fed projections indicate rate cuts of 75.0 basis points in 2024, possibly in the form of three 25.0-basis point rate reductions, although changes in the economy or inflation could prompt the Fed to alter its course of action moving forward.

Raising interest rates may have helped drive down inflation, but it also had the unfortunate effect of cooling the housing market. Rising interest rates also carried over to mortgage rates, which vaulted higher, peaking at about 8.0% in October, more than double the mortgage rate during the pandemic and well above pre-pandemic levels. Higher mortgage rates translated to fewer buyers. However, home prices climbed higher year over year, primarily due to diminishing inventory. Fortunately, mortgage rates have fallen by more than a full point over the last few months of the year, settling at about 6.61% at the end of December.

In a span of a few weeks in March, three small-to-mid size U.S. banks failed, which prompted investors to lose confidence in the banking industry and sent bank stocks plummeting amid fears that more bank failures could follow. Losses on cryptocurrency investments, falling real estate investments, downturns in bond portfolios, and a run on bank deposits triggered the banking collapse. A potential escalation was likely averted by the Federal Reserve, which provided emergency loans to distressed banks, while ensuring that all deposits would be honored.

As if interest rate hikes and bank failures weren’t enough to digest, investors spent the first half of the year dissecting rhetoric over the debt ceiling crisis. In mid-January, the United States hit its debt ceiling, which prompted a political back-and-forth until the beginning of June, when an agreement was reached. The result was new legislation, the Fiscal Responsibility Act of 2023, which effectively raised the debt ceiling but capped federal government spending.

The U.S. economy proved to be resilient in 2023. Gross domestic product expanded during each of the first three quarters of the year, increasing 2.2% in the first quarter, 2.1% in the second quarter, and 4.9% in the third quarter. Consumer spending, the linchpin of the economy, also showed strength, climbing 3.1% in the third quarter. Consumers spent on both goods and services throughout the year.

The employment sector, expected by some to slow with rising interest rates, maintained strength throughout the year. While the number of new jobs trended lower during the second half of the year, job growth averaged 240,000 through November. There were 6.3 million unemployed in November 2023, compared to 6.0 million a year earlier. The unemployment rate was 3.7% and remained within a range of 3.5%-3.8% for most of the year. Average hourly earnings increased by 4.0% in 2023. The number of job openings decreased during the year but remained solid at 8.7 million.

One of the primary factors in the drop in overall inflation was a decline in energy prices. According to the Consumer Price Index, energy prices fell 5.4% over the 12 months ended in November (latest CPI data available). Gasoline prices dropped 8.9% over the same period. Food prices, on the other hand, rose 2.9%, while prices for shelter increased 6.5%.

Total industrial production declined 0.4% through November (latest data available). Manufacturing, which accounts for about 78.0% of total production, decreased 0.8%. A lengthy strike by U.S. auto workers impacted motor vehicle production in particular, and overall manufacturing in general. However, in addition to the impact of striking workers, manufacturers faced higher borrowing costs and weaker demand for goods.

As 2023 drew to a close, there were some positives to consider upon entering the new year. The GDP expanded at a greater-than-expected pace in the third quarter, and crude oil and gas prices reversed course and dipped lower. Primary inflationary indicators, such as the Consumer Price Index and the personal consumption expenditures price index, trended lower at the end of the year. If interest rates decrease, borrowing will be available to more consumers, which should help the housing sector. Stocks enjoyed a solid bounce back in 2023. If corporate earnings continue to rebound, that would bode well for stocks in 2024. There are factors that will come into play next year, but how they impact the economy and markets is open to speculation. How much longer will the Russia/Ukraine war last, and how much more financial aid will be coming from the United States? The Hamas/Israel conflict could expand to include other countries, impacting other lives and economies. And, of course, 2024 brings with it a presidential election.

Market/Index	2022 Close	As of 9/29	2023 Close	Month Change	Q4 Change	2023 Change
DJIA	33,147.25	33,507.50	37,689.54	4.84%	12.48%	13.70%
Nasdaq	10,466.48	13,219.32	15,011.35	5.52%	13.56%	43.42%
S&P 500	3,839.50	4,288.05	4,769.83	4.42%	11.24%	24.23%
Russell 2000	1,761.25	1,785.10	2,027.07	12.05%	13.55%	15.09%
Global Dow	3,702.71	3,982.95	4,355.28	4.66%	9.35%	17.62%
fed. funds target rate	4.25%-4.50%	5.25%-5.50%	5.25%-5.50%	0 bps	0 bps	100 bps
10-year Treasuries	3.87%	4.57%	3.86%	17 bps	7 bps	-1 bps
US Dollar-DXY	103.48	106.19	101.39	-2.04%	-4.52%	-2.02%
Crude Oil-CL=F	$80.41	$90.87	$71.30	-5.78%	-21.54%	-11.33%
Gold-GC=F	$1,829.70	$1,864.90	$2,072.50	0.80%	11.13%	13.27%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Snapshot 2023

The Markets

• Equities: Stocks began 2023 on a positive note and ended the year trending higher. However, the ride for investors throughout the year was not always a smooth one. Traders tried to assess the impact of inflation, rising interest rates, an unexpected banking crisis, and rising global tensions. Nevertheless, the economy proved resilient, corporate profits rose, and the once-anticipated economic recession never materialized. Technology stocks rebounded in 2023, with megacaps and artificial intelligence shares leading the charge. Each of the benchmark indexes listed here closed 2023 much higher compared to 2022. The Nasdaq ended the year up more than 40.0%, while the large caps of the S&P 500 gained nearly 25.0%. The Global Dow advanced about 17.0%. The small caps of the Russell 2000, underwater in August, surged during the second half of the year to finish up by more than 15.0%. While the road traveled by the Dow was bumpy, that benchmark index managed to close the year up by nearly 13.0%.
• In 2023, investors looked to high growth and cyclical shares, while defensive sectors lagged. Communication services and information technology gained over 55.0%. Also trending notably higher in 2023 were consumer discretionary and industrials. On the other hand, utilities, consumer staples, energy, and health care closed lower.
• Bonds: For much of 2023, bond prices declined, sending yields higher. The yield on 10-year Treasuries reached a high in October at about 4.9% but steadily fell throughout the remainder of the year, ultimately settling right about where they began the year. Softening inflation data, cooling labor growth, and the expectation that interest rates will drop, helped drive bond values higher. Two-year Treasury yields also decreased from a high of 5.2% in October to 4.4% by year’s end. The Bloomberg Aggregate Bond Index, which realized the worst return in its history after declining nearly 13.0% in 2022, rose a little over 5.0% in 2023.
• Oil: West Texas Intermediate (WTI) crude oil prices began the year at about $80.00 per barrel then rode a wave of volatility throughout 2023, peaking at about $93.68 in late September. Since that time, crude oil prices have steadily declined despite production cuts by OPEC+ and the Israel/Hamas conflict. Decreasing demand and booming oil production by the United States and other oil-producing countries have driven prices lower. Meanwhile, the turmoil in the Middle East did not impact production and delivery as might have been expected, although prices began to trend higher at the end of December following shipping disruptions in the Red Sea due to Houthi rebel attacks. Nevertheless, crude oil prices declined for the year, marking the first annual loss since 2020.
• Prices at the pump were somewhat unpredictable throughout the year, largely responding to changes in global economics, supply and demand, and other extraordinary factors largely attributable to the unrest in the Middle East. The average retail price for a gallon of regular gasoline was $3.223 at the beginning of the year. By mid-July, the price had risen to $3.559 per gallon, capping at $3.878 per gallon in mid-September, then steadily declining for the remainder of the year to an average price of $3.116 on Christmas day.
• FOMC/interest rates: The target range for the federal funds rate began the year at 4.25%-4.50% following four interest rate increases by the Federal Open Market Committee in 2022. In 2023, the FOMC announced four consecutive 25.0-basis point interest rate increases from February through July, bringing the federal funds target rate range to 5.25%-5.50%. The Committee met again in September, October, and December, however, interest rates were unchanged following each of those meetings. After its final meeting of 2023 in December, the FOMC statement indicated that the economy had slowed from its strong pace in the third quarter and that inflation, while it had eased over the past year, remained elevated. While the Committee left the door open to more rate increases if necessary to return inflation to its 2.0% target, it appeared that the current tightening cycle had peaked, and no rate hikes were foreseen. In addition, FOMC projections for 2024 would be consistent with three 25.0-basis point rate cuts, but that is speculative and could change.
• US Dollar-DXY: For much of the year, the dollar rode the ebbs and flows of rising and receding inflation, both domestically and globally. After peaking in September, the dollar’s value against a basket of currencies retreated. Decreasing inflation and falling bond yields, particularly during the last two months of the year, weakened the dollar. In December, speculation grew that the Federal Reserve may begin cutting interest rates, possibly beginning in March 2024. This news further weakened the dollar, bringing its value to a five-month low by the end of the year. Overall, the dollar is set to have its worst year since 2020. In contrast, other currencies, such as the euro, have increased against the dollar. The value of the dollar is likely to further weaken in 2024, particularly if interest rates and bond yields decrease further.
• Gold: Gold prices began the year at about $1,830.00 per ounce and hit a record high of $2,152.30 near the end of 2023. However, while gold prices proved less volatile in 2023, compared to 2022, there was still plenty of fluctuation in prices throughout the year. While gold prices began the year on an upswing, that quickly changed. The price of gold retreated as the economy, the dollar, and Treasury yields all saw gains, driving gold prices to a low of $1,809.87 in late February. However, the financial uncertainty caused by the bank crisis in March and April helped drive up the price of gold to over $2,000.00 per ounce. Beginning in September, particularly after the Federal Reserve announced that it would hold interest rates steady, interest in gold waned. As prices headed to below $1,800.00 per ounce, the attacks by Hamas in early October started a war with Israel, sending gold prices past the $2,000.00 per ounce mark at the end of the year.

Last Month’s Economic News

• Employment: Job growth was stronger than expected in November, with the addition of 199,000 new jobs after adding 150,000 new jobs in October. Monthly job growth has averaged 240,000 over the prior 12 months, compared with 375,000 per month in 2022. In November, the unemployment rate declined 0.2 percentage point to 3.7% and has remained in the range of 3.5%-3.7% since March. The number of unemployed persons edged down 215,000 from October to 6.3 million. In November, the number of long-term unemployed (those jobless for 27 weeks or more) edged down to 1.2 million. These individuals accounted for 18.3% of all unemployed persons. The labor force participation rate inched up 0.1 percentage point to 62.8% in November (62.3% at the end of 2022). The employment-population ratio increased 0.3 percentage point to 60.5% in November (59.9% in November 2022). In November, average hourly earnings increased by $0.12 to $34.10. Over the past 12 months ended in November, average hourly earnings rose by 4.0% (average hourly earnings were $32.82, up 4.6% in 2022). The average workweek decreased by 0.1 hour to 34.4 hours in November, the same as in November 2022.
• There were 218,000 initial claims for unemployment insurance for the week ended December 23, 2022. During the same period, the total number of workers receiving unemployment insurance was 1,875,000. Over the course of the year, initial weekly claims gradually moved. A year ago, there were 213,000 initial claims, while the total number of workers receiving unemployment insurance was 1,627,000.
• FOMC/interest rates: As expected, the Federal Open Market Committee maintained the target range for the federal funds rate at the current 5.25%-5.50% following its meeting in December. In arriving at its decision, the Committee noted that the economy had slowed and that inflation, while it had eased, remained elevated. As to future policy actions, the FOMC provided that “In determining the extent of any additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” In addition, the Committee’s projections for the federal funds rate indicate the possibility of three 25.0-basis point rate decreases in 2024.
• GDP/budget: The economy, as measured by gross domestic product, accelerated at an annual rate of 4.9% in the third quarter, following increases of 2.2% in the first quarter and 2.1% in the second quarter. A year ago, GDP expanded at an annualized rate of 2.7% in the third quarter. Consumer spending, as measured by the personal consumption expenditures index, rose 3.1% in the third quarter, higher than in the second quarter (0.8%) but less than the first quarter (3.8%). Spending on services rose 2.2% in the third quarter compared with a 1.0% increase in the second quarter. Consumer spending on goods increased 4.9% in the third quarter (0.5% in the second quarter). Fixed investment advanced 2.6% in the third quarter (5.2% in the second quarter). Nonresidential (business) fixed investment rose 1.4% in the third quarter after jumping 7.4% in the previous quarter. Residential fixed investment jumped 6.7% in the third quarter, following a 2.2% decrease in the second quarter. Exports rose 5.4% in the third quarter, compared with a 9.3% decrease in the previous quarter. Imports, which are a negative in the calculation of GDP, increased 4.2% in the third quarter, after declining 7.6% in the second quarter. Consumer prices increased 2.6% in the third quarter (2.5% in the second quarter). Excluding food and energy, consumer prices advanced 2.0% in the third quarter (3.7% in the second quarter).
• November saw the federal budget deficit come in at $314.0 billion, up roughly $65.5 billion over the November 2022 deficit. The deficit for the first two months of fiscal year 2024, at $380.6 billion, is $44.2 billion higher than the first two months of the previous fiscal year. For fiscal year 2023, which ended September 2023, the government deficit was $1.7 trillion, which was $3.0 billion above the government deficit for fiscal year 2022. Last fiscal year, government outlays declined $200.0 billion, while government receipts decreased $500.0 billion. Individual income tax receipts decreased by $4.0 billion, and corporate income tax receipts declined by $5.0 billion.
• Inflation/consumer spending: According to the latest Personal Income and Outlays report, personal income and disposable personal income rose 0.4% in November after increasing 0.3% in October. Consumer spending advanced 0.2% in November after increasing 0.1% the previous month. Consumer prices inched down 0.1% in November after being unchanged in October. Excluding food and energy (core prices), prices rose 0.1% in November, the same monthly increase as in October. Consumer prices rose 2.6% since November 2022, while core prices increased 3.2%.
• The Consumer Price Index for November supported the notion that inflationary pressures are trending lower. The CPI rose 0.1% after being unchanged in October. Over the 12 months ended in November, the CPI rose 3.1%, down from 3.2% in October. Excluding food and energy prices, the CPI rose 0.3% in November and 4.0% for the year ended in November, unchanged from the 12-month period ended in October. Energy prices fell 2.3% in November, while food prices rose 0.2% and prices for shelter rose 0.4%. For the 12 months ended in November, energy prices decreased 5.4%, while food prices rose 2.9% and shelter prices advanced 6.5%. Gasoline prices dropped 8.9% over the last 12 months, while fuel oil prices fell 24.8%.
• In another sign of waning inflation, prices that producers received for goods and services were unchanged in November following a 0.4% decline in October. Producer prices increased 0.9% for the 12 months ended in November, down from a 1.3% increase for the year ended in October. Producer prices less foods, energy, and trade services inched up 0.1% in November, while prices excluding food and energy were flat. For the 12 months ended in November, prices less foods, energy, and trade services moved up 2.5% (2.9% for the 12 months ended in October), while prices less foods and energy increased 2.0% (2.4% for the period ended in October). In November, prices for food rose 0.6% but fell 4.9% year over year, the largest drop since December 2015. Energy prices were down 2.1% in November and 8.4% since November 2022.
• Housing: Sales of existing homes increased 0.8% in November, marking the first monthly increase in the last six months. Existing home sales dropped 7.3% from November 2022. The median existing home price was $387,600 in November, lower than the October price of $391,600 but 4.0% higher than the November 2022 price of $372,700. Unsold inventory of existing homes represented a 3.5-month supply at the current sales pace, down slightly from October (3.6 months) but above the 3.3-month supply in November 2022. Sales of existing single-family homes increased 0.9% in November, the first monthly increase since February. Over the 12 months ended in November, sales of existing single-family homes were down 7.3%. The median existing single-family home price was $392,100 in November, down from $396,000 in October but 3.5% above the November 2022 price of $378,700.
• New single-family home sales declined in November, falling 12.2% after dropping 4.2% in October. However, sales were up 1.4% from November 2022. The median sales price of new single-family houses sold in November was $434,700 ($414,900 in October). The November average sales price was $488,900 ($498,500 in October). The inventory of new single-family homes for sale in November represented a supply of 9.2 months at the current sales pace, the largest supply of new single-family homes for sale nationwide this year.
• Manufacturing: Industrial production increased 0.2% in November, following a 0.9% decrease in October. Manufacturing advanced 0.3% in November, driven higher by a 7.1% jump in motor vehicles and parts production following the resolution of strikes at several major automakers. Manufacturing excluding motor vehicles and parts decreased 0.2%. Mining rose 0.3%, while utilities fell 0.4%. Over the past 12 months ended in November, total industrial production was 0.4% below its year-earlier reading. For the 12 months ended in November, manufacturing increased 1.3%, utilities advanced 3.5%, while mining declined 0.4%.
• November saw new orders for durable goods increase 5.4%, marking the second monthly advance out of the last three months. Durable goods orders declined 5.1% in October. New orders for durable goods rose 14.5% since November 2022. Excluding transportation, new orders increased 0.5% in November. Excluding defense, new orders increased 6.5%. Transportation equipment, up two of the last three months, led the November increase, advancing 15.3%.
• Imports and exports: Both import and export prices declined in November. Import prices fell 0.4% in November after decreasing 0.6% in October, the first one-month declines since June 2023. Import prices fell 1.4% over the past year. Prices for import fuel declined 5.6% in November following a 3.7% drop in October. The November decrease in fuel prices was the largest monthly decline since February 2023. Import fuel prices fell 10.3% since November 2022. Prices for nonfuel imports rose 0.2% in November, marking the first monthly increase since February. Despite the November increase, nonfuel imports fell 0.4% since November 2022. Export prices declined 0.9% in November after falling 0.9% in October. Prices for exports decreased 5.2% from November 2022.
• The international trade in goods deficit was $90.3 billion in November, up $0.7 billion, or 0.8%, from October. Exports of goods were $165.1 billion in November, $6.2 billion less than in October. Imports of goods were $255.4 billion in November, $5.5 billion less than in October. The November drop in exports was widespread, with industrial supplies (-6.6%) and automotive vehicles (-5.6%) falling the furthest. Each category of imports decreased with the exception of foods, feeds, and beverages (0.8%). Imports of consumer goods fell the furthest, decreasing 6.5%.
• The latest information on international trade in goods and services, released December 6, is for October and revealed that the goods and services trade deficit was $64.3 billion, an increase of $3.1 billion from the September deficit. October exports were $258.8 billion, 1.0% less than September exports. October imports were $323.0 billion, 0.2% more than September imports. Year to date, the goods and services deficit decreased $161.4 billion, or 19.8%, from the same period in 2022. Exports increased $28.0 billion, or 1.1%. Imports decreased $133.4 billion, or 4.0%.
• International markets: Inflation fell in most major countries during the last quarter of the year. Declining prices for food, energy, and goods, coupled with tightened monetary policies, helped draw down inflation. Several countries saw consumer prices, as measured by the Consumer Price Index, trend lower in November, including Canada (3.1%), Germany (3.2%), the Eurozone (2.4%), United Kingdom (3.9%), and Japan (2.9%). For 2023, the STOXX Europe 600 Index rose 12.7%; the United Kingdom’s FTSE advanced 3.8%; Japan’s Nikkei 225 Index gained 28.2%; and China’s Shanghai Composite Index lost 3.7%.
• Consumer confidence: Consumers ended 2023 with a surge in confidence and restored optimism for 2024. The Conference Board Consumer Confidence Index® increased in December to 110.7, following a 101.0 reading in November. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, rose to 148.5 in December, up from 136.5 in the previous month. The Expectations Index, based on consumers’ short-term outlook for income, business, and labor market conditions, improved to 85.6 in December from 77.4 in November.

Eye on the Year Ahead

Will waning inflation and slowing job growth prompt the Federal Reserve to lower interest rates in 2024? And if interest rates are decreased, what impact will that have on the bond and stock market? Crude oil prices and retail gas prices declined in 2023. However, the ongoing conflict in the Middle East, coupled with a cut in production, could force prices for both commodities higher this year. Lastly, 2024 is an election year, the results of which will almost certainly impact the economy in general and Wall Street in particular.

The Markets (as of market close December 29, 2023)

The markets closed out last week and the year with gains, despite losing steam at the end of the week. Each of the benchmark indexes listed here ended last week higher, with the exception of the Russell 2000, which dipped 0.3%. The Dow and the S&P 500 logged their ninth straight week of gains, with the S&P 500 enjoying its longest weekly winning streak since 2004. Health care and utilities led the market sectors, along with industrials, financials, and real estate. Energy and communication services ended the week in the red. Bond values advanced, pulling yields lower. Crude oil prices closed the week and the year lower. The dollar edged down, while gold prices eked out a gain.

Wall Street closed higher to begin the last week of 2023. Each of the benchmark indexes listed here closed higher, with the S&P 500 reaching a new 52-week high (but short of an all-time high). The Russell 2000 continued to vault higher as the year drew to a close, gaining 1.2% to lead the benchmark indexes listed here. The Nasdaq gained 0.5%, while the Dow, the Global Dow, and the S&P 500 each added 0.4%. Bond prices rose, pulling yields lower, with 10-year Treasury yields dipping 1.5 basis points to close at 3.88%. Crude oil prices rose 2.3% to $75.23 per barrel, likely influenced by risks of further shipping disruptions in the Red Sea. The dollar dipped 0.2%, while gold prices rose 0.5% as they neared $2,100.00 per ounce.

The S&P 500 moved closer to reaching an all-time high after eking out a 0.1% gain as stocks continued to push higher last Wednesday. The Global Dow gained 0.7% to lead the benchmark indexes listed here, followed by the Russell 2000 and the Dow, which both added 0.3%. The Nasdaq rose 0.2%. Yields on 10-year Treasuries fell 9.7 basis points to close at 3.78%. Crude oil prices lost 2.2%, slipping to $73.91 per barrel. The dollar lost 0.5% against a basket of currencies, while gold prices gained 1.0%.

Stocks were fairly muted last Thursday, although the Dow (0.1%) gained enough to hit a new record high, while the S&P 500 ended the day flat, percentage points off from closing the year with a new record high. The Nasdaq and the Global Dow ended the session where they began, while the Russell 2000 slipped 0.4%. Bond prices retreated, sending yields on 10-year Treasuries up 6.1 basis points to 3.85%. Crude oil prices dropped for the second straight session, closing at about $71.91 per barrel after falling 3.0%. The dollar gained 0.2%, while gold prices fell 0.8%.

Wall Street couldn’t maintain its momentum at the close of last week. Stocks ticked lower last Friday, with each of the benchmark indexes listed here ending the session in the red. The Russell 2000 dropped 1.5%, followed by the Nasdaq, which lost 0.6%. The S&P 500, which had been trending toward an all-time high, never quite reached that mark after slipping 0.3%. The Global Dow and the Dow dipped 0.2% and 0.1%, respectively. Ten-year Treasury yields were flat, closing at 3.86%. Crude oil prices fell 0.6% ending at $71.38 per barrel. The dollar ticked up 0.1%, while gold prices fell 0.5%.

Stock Market Indexes

Market/Index	2022 Close	Prior Week	As of 12/29	Weekly Change	YTD Change
DJIA	33,147.25	37,385.97	37,689.54	0.81%	13.70%
Nasdaq	10,466.48	14,992.97	15,011.35	0.12%	43.42%
S&P 500	3,839.50	4,754.63	4,769.83	0.32%	24.23%
Russell 2000	1,761.25	2,033.96	2,027.07	-0.34%	15.09%
Global Dow	3,702.71	4,315.12	4,355.28	0.93%	17.62%
fed. funds target rate	4.25%-4.50%	5.25%-5.50%	5.25%-5.50%	0 bps	100 bps
10-year Treasuries	3.87%	3.90%	3.86%	-4 bps	-1 bps
US Dollar-DXY	103.48	101.73	101.39	-0.33%	-2.02%
Crude Oil-CL=F	$80.41	$73.56	$71.30	-3.07%	-11.33%
Gold-GC=F	$1,829.70	$2,064.20	$2,072.50	0.40%	13.27%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

• The advance report on international trade in goods revealed the deficit was $90.3 billion in November, 0.8% higher than the October deficit. Exports of goods for November were $165.1 billion, 3.6% less than October exports. Imports of goods for November were $255.4 billion, 2.1% less than October imports.
• The national average retail price for regular gasoline was $3.116 per gallon on December 25, $0.063 per gallon higher than the prior week’s price and $0.025 more than a year ago. Also, as of December 25, the East Coast price increased $0.067 to $3.117 per gallon; the Midwest price rose $0.060 to $2.858 per gallon; the Gulf Coast price increased $0.137 to $2.684 per gallon; the Rocky Mountain price climbed $0.053 to $2.861 per gallon; and the West Coast price decreased $0.004 to $4.051 per gallon.
• For the week ended December 23, there were 218,000 new claims for unemployment insurance, an increase of 12,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended December 16 was 1.3%, an increase of 0.1 percentage point from the previous week’s rate, which was revised down by 0.1%. The advance number of those receiving unemployment insurance benefits during the week ended December 16 was 1,875,000, an increase of 14,000 from the previous week’s level, which was revised down by 4,000. States and territories with the highest insured unemployment rates for the week ended December 9 were New Jersey (2.3%), Alaska (2.2%), California (2.2%), Minnesota (2.0%), Montana (2.0%), Massachusetts (1.9%), Puerto Rico (1.9%), Washington (1.9%), Illinois (1.8%), New York (1.8%), and Rhode Island (1.8%). The largest increases in initial claims for unemployment insurance for the week ended December 16 were in Ohio (+1,304), Oklahoma (+1,029), Michigan (+580), Connecticut (+472), and Massachusetts (+432), while the largest decreases were in California (-3,834), Georgia (-1,684), Pennsylvania (-588), Arkansas (-541), and Minnesota (-500).

Eye on the Week Ahead

The first week of the new year focuses on employment and industrial production. Purchasing managers surveys for manufacturing and services for December are out this week. November saw an uptick in the services sector, while manufacturing waned, according to survey respondents. As to employment, two important indicators are out this week with the release of the Job Openings and Labor Turnover Survey for November and the Employment Situation for December. The previous JOLTS report showed job openings decreased, while hires and separations changed little. On the other hand, there were 199,000 new jobs added in December, slightly above the consensus, but below the 240,000 monthly average for 2023.