“To get what you want, you have to deserve what you want. The world is not yet a crazy enough place to reward a whole bunch of
undeserving people.” ― Charles T. Munger

1. Inflation slowed to a 3.1% annual rate in November — The consumer price index, a closely watched inflation gauge, increased 0.1% in November, and was up 3.1% from a year ago, the Labor Department reported. Economists surveyed by Dow Jones had been looking for no gain and a yearly rate of 3.1%.
While the monthly rate indicated a pickup from the flat CPI reading in October, the annual rate showed another decline after hitting 3.2% a month earlier. Excluding volatile food and energy prices, the core CPI increased 0.3% on the month and 4% from a year ago. Both numbers were in line with estimates and little changed from October.
The November numbers are still well above the Fed’s 2% target, though showing continuing progress. Policymakers focus more on core inflation as a signal for longer-term trends.
2. Fed holds rates steady, indicates three cuts coming in 2024 — The Federal Reserve on Wednesday held its key interest rate steady for the third straight time and set the table for multiple cuts to come in 2024 and beyond. With the inflation rate easing and the economy holding in, policymakers on the Federal Open Market Committee voted unanimously to keep the benchmark overnight borrowing rate in a targeted range between 5.25%-5.5%. Along with the decision to stay on hold, committee members penciled in at least three rate cuts in 2024, assuming quarter percentage point increments. That’s less than market pricing of four, but more aggressive than what officials had previously indicated.
3. US Producer-Price Inflation Cools to Below 1% as Energy Slides — The producer price index for final demand was unchanged from a month earlier. Excluding food and energy, the so-called core PPI was also flat, Bureau of Labor Statistics data showed.
From a year ago, the overall measure was up 0.9%, while the core gauge was up 2%, the least since January 2021. Services prices were unchanged for the second straight month. Goods prices were also unchanged after a steep decline in October. Energy costs fell 1.2% last month.
4. Strong Holiday Spending Adds to Signs U.S. May Beat Inflation Without Downturn — Signaling a strong start to the holiday season, retail sales rose a seasonally adjusted 0.3% in November from the month before, the Commerce Department said Thursday. That was a rebound from October’s downwardly revised 0.2% decline and a surprise to economists who had expected sales to fall again last month.
The data extended a week of positive readings for the U.S. economy. The unemployment rate fell in November, inflation cooled and the Federal Reserve pivoted Wednesday away from raising interest rates and toward considering when to cut them. The good tidings have ignited a rally on Wall Street, pushing the Dow Jones Industrial Average to a record high and caused yields on the 10-year Treasury note to fall below 4% on Thursday.

The week ahead — Economic data from Econoday.com:

“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.” — C Munger

1. Bank of Canada Expected to Hold Rates Steady on Deteriorating Outlook –Bank of Canada Gov. Tiff Macklem said interest rates may be at an appropriate level to wrestle inflation down further to the central bank’s 2% target. Economists say those remarks were prescient given new indicators measuring price increases, gross domestic product and the health of the labor market. Headline inflation in Canada cooled to 3.1% in October, from 3.8% in the prior month, and a peak of 8.1% in June 2022. More important, three-month measures of core consumer prices—which strip out volatile items like food and energy—fell to their lowest levels since early 2021. The Bank of Canada sets rate policy to achieve and maintain 2% inflation, and central bank officials have repeatedly said they need to see evidence of sustainable deceleration in core inflation before rate cuts can be entertained.
2. Moody’s Faces Growing Backlash Over Its Negative Outlook on China — New York-based Moody’s on lowered its outlook on China’s credit rating to negative from stable and kept its A1 investment-grade rating on the country—which it hasn’t changed since 2017. The credit rater said the growing debt problems of some cities and provinces would force China’s central government to provide financial support when economic growth is slowing. The country is also grappling with a deep property slump.
The change in Moody’s view led to a raft of similar changes to its outlooks for China’s state-owned banks, insurers and companies, including 22 local government financing vehicles that have issued international bonds. Moody’s also shifted to a negative credit-rating outlook for Hong Kong and Macau, both semiautonomous regions of China. That similarly cascaded down to its outlook for other companies, including the operator of Hong Kong’s subway system.
3. U.S. Wholesale Inventories Fell Again in October — Inventories at merchant wholesalers were 0.4% lower at the end of October than the same point a month earlier, according to adjusted Commerce Department figures released. Economists had expected inventories to slip by 0.2%, according to a poll carried out by The Wall Street Journal.
In September, inventories stayed at the same level as in August, according to revised figures that had previously shown a slight and unexpected rise.
Inventories of nondurable goods led the decrease in October, slipping 1.0%, with petroleum levels falling the fastest. Durable goods, on the other hand, increased slightly on the month, led by rising machinery stocks.
4. U.S. Consumer Confidence Jumps in December as Inflation Pressure Eases — A preliminary reading Friday of the University of Michigan’s consumer-confidence index show it surging to 69.4 points from 61.3 at the end of November. Economists polled by The Wall Street Journal had expected it to rise less sharply to 62.4.
The jump reverses four previous months of declines, though confidence remains well below levels before the Covid-19 pandemic, survey director Joanne Hsu said. Consumers are confident that inflation will fall more rapidly than previously expected, seeing it at 3.1% for the year ahead compared with 4.5% previously, the survey showed.

The week ahead — Economic data from Econoday.com:

‘Avoid crazy at all costs’ –– Charles Munger

1. Fed’s Waller, Bowman Open Door to Another Interest Rate Pause in December — Two Federal Reserve officials who led the push for higher interest rates to curb inflation last year signaled they could be comfortable holding rates steady for now, reinforcing expectations that the central bank’s current hiking cycle is done. While the remarks don’t fundamentally change expectations for the Fed’s December meeting, Waller’s comments in particular suggest support is widening among officials for an extended policy pause amid signs that economic activity, inflation and the labor market are cooling.
2. U.S. GDP grew at a 5.2% rate in the third quarter, even stronger than first indicated — Gross domestic product, a measure of all goods and services produced during the three-month period, accelerated at a 5.2% annualized pace, the department’s second estimate showed. The acceleration topped the initial 4.9% reading and was better than the 5% forecast from economists polled by Dow Jones. Primarily, the upward revision came from increases in nonresidential fixed investment, which includes structures, equipment and intellectual property. The category showed a rise of 1.3%, which still marked a sharp downward shift from previous quarters.
Government spending also helped boost the Q3 estimate, rising 5.5% for the July-through-September period.
However, consumer spending saw a downward revision, now rising just 3.6%, compared with 4% in the initial estimate.
3. Fed’s favorite gauge shows inflation rose 0.2% in October and 3.5% from a year ago, as expected — the personal consumption expenditures price index, excluding food and energy prices, rose 0.2% for the month and 3.5% on a year-over-year basis, the Commerce Department reported. Both numbers aligned with the Dow Jones consensus.
Headline inflation was flat on the month and at a 3% rate for the 12-month period, the release also showed. Energy prices fell 2.6% on the month, helping keep overall inflation in check, even as food prices increased 0.2%.
Goods prices saw a 0.3% decrease while services rose 0.2%. On the services side, the biggest gainers were international travel, health care and food services and accommodations. In goods, gasoline led the gainers.
Personal income and spending both rose 0.2% on the month, also meeting estimates and indicating that consumers are keeping pace with inflation.

The week ahead — Economic data from Econoday.com:

1. Home Sales Fell to a New 13-Year Low in October — Home-buying affordability sits near its lowest level in decades, pushing many buyers out of the market. Existing-home sales for the full year in 2023 are on track to be the lowest since at least 2011, according to economist forecasts.
Existing-home sales, which make up most of the housing market, decreased 4.1% in October from the prior month to a seasonally adjusted annual rate of 3.79 million, the lowest rate since August 2010, the National Association of Realtors said Tuesday. October sales fell 14.6% from a year earlier. Sales have been near 2010 levels in recent months.

Here is the market recap for the week
Sector Performance

Most sectors of the market were higher last week, with technology and communication services stocks leading the gains. The technology sector rose 2.1%, while the communication services sector advanced 1.9%. Other sectors that performed well included financials (up 1.3%) and consumer discretionary (up 1.2%).

Notable Developments

— In addition to the factors mentioned above, there were a few other notable developments in the market last week:
— Fed’s monetary policy outlook: Comments from Federal Reserve officials last week suggested that the Fed may be nearing the end of its rate-hiking cycle. This news was seen as positive for the market.
— Geopolitical tensions: Geopolitical tensions remained elevated last week, but they did not appear to have a significant impact on the market.

The week ahead — Economic data from Econoday.com:

I know where I’m getting out before I get in. — Bruce Kovner

1. US Inflation Broadly Slows, Erasing Bets on More Fed Rate Hikes — The so-called core consumer price index, which excludes food and energy costs, increased 0.2% from September, according to government figures. Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI. That measure was little changed, restrained by cheaper gasoline. The Bureau of Labor Statistics figures reflected increases in rent and personal-care products and services, as well as health insurance due to a methodological change in how the government calculates it. Meanwhile, airfares and used-car prices declined.
Shelter prices, which make up about a third of the overall CPI index, climbed 0.3%, half the prior month’s pace. Economists see a sustained moderation in this category as key to bring core inflation down to the Fed’s target. A key measure of rent as well as hotel stays stepped down.
Excluding housing and energy, services prices climbed 0.2% from September and 3.7% from a year ago — the lowest in nearly two years — according to Bloomberg calculations. While Powell and his colleagues have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on a separate index.
2. US Producer Prices Decline by Most Since April 2020 on Gasoline — The producer price index for final demand decreased 0.5% from a month earlier, a sharp slowdown that’s largely reflective of a decline in gasoline prices. Excluding food and energy, the so-called core PPI was unchanged, government data showed.
From a year ago, the overall measure was up 1.3%, while the core gauge posted the smallest annual increase since the start of 2021. Over 80% of the decrease in goods prices was due to a 15.3% slump in the cost of gasoline, the government report. Services costs, meanwhile, were flat after rising six straight months.

The week ahead — Economic data from Econoday.com:

“Do not SELL lower low, Do not BUY lower high”

1. China’s Exports Tumble Again in Fresh Sign of Economic Trouble — China’s exports fell for the sixth straight month, adding to pressure on Beijing to boost spending at home as a big rise in global interest rates and wars in Ukraine and the Middle East weigh on the world economy. Chinese exports fell 6.4% in October compared with a year earlier, to $275 billion, China’s General Administration of Customs said Tuesday, a steeper decline than the 6.2% fall recorded in September. Diminishing exports show global demand for Chinese goods is subdued as consumers and businesses contend with slowing growth and higher borrowing costs. Other Asian export powerhouses, such as South Korea and Taiwan, have also reported months of feeble overseas sales.
2. Citrix Owner Becomes Latest U.S. Company to Retreat From China — Cloud Software Group, which owns enterprise-software brand Citrix, is ceasing business transactions in China, becoming the latest U.S. company to pull back from China. Cloud Software Group is the latest U.S. technology company to withdraw or significantly shrink its business operations in China as the economy slows and national-security and data-related concerns grow.
This year, Microsoft’s LinkedIn closed down its China-focused jobs app, following its exit from its social-media business in the country. Salesforce shifted to a model in which it relies on a local partner to operate some of its products and services in China. It also laid off staff in mainland China and Hong Kong and closed its Hong Kong office, The Wall Street Journal reported.
3. Jerome Powell Outlines Cautious Approach to Raising Rates or Declaring End to Hikes — Fed Chair Jerome Powell said it was premature for the central bank to declare a conclusive end to its historic interest-rate increases of the past two years even though he didn’t make an argument for raising rates further right now. The Fed has raised interest rates this year to a 22-year high to combat inflation by slowing economic activity. Officials are committed to achieving a rate setting that is “sufficiently restrictive” to bring inflation down to its 2% goal over time. “We are not confident that we have achieved such a stance,” Powell said in remarks prepared for delivery at a conference in Washington on Thursday. Powell said officials would monitor economic conditions closely to avoid the risk of having raised rates too high and the risk of having been “misled by a few good months of data.”
4. US Credit-Rating Outlook Changed to Negative by Moody’s — the rating assessor lowered the outlook to negative from stable while affirming the nation’s rating at Aaa, the highest investment-grade notch. Amid higher interest rates, without measures to reduce spending or boost revenue, fiscal deficits will likely “remain very large, significantly weakening debt affordability,” Moody’s said. Moody’s is the only of the three main credit companies with a top rating on the US after Fitch Ratings downgraded the US government in August following the latest debt-ceiling battle. S&P Global Ratings stripped the US of its top score in 2011 amid that year’s debt-limit crisis.

The week ahead — Economic data from Econoday.com:

1. Fed Extends Pause on Interest-Rate Hikes but Keeps Door Open to Higher Rates — The Federal Reserve left interest rates unchanged at a 22-year high and signaled rates would remain elevated well into next year to keep inflation moving down. At the September meeting, most central-bank officials projected one more rate increase this year, but some have spoken in recent weeks as though they aren’t eager to hike again unless hotter-than-expected economic data force them to. That is a change from earlier this year, when they were more concerned about tightening too little. Officials have been trying to balance two risks. They don’t want to overdo rate rises to avoid causing an unnecessarily severe downturn. They also don’t want to allow inflation to reaccelerate or to settle at levels well above their 2% target. “We’re getting to a place where the risks are closer to being in balance,” Powell said.
2. US Productivity Grows by Most Since 2020, Labor Costs Decrease — US labor productivity advanced by the most in three years, helping to alleviate the inflationary impact of recent wage growth. Productivity, or nonfarm business employee output per hour, rose at a 4.7% annualized rate in the third quarter after climbing 3.6% in the prior period, data from the Bureau of Labor Statistics showed late last week.
Unit labor costs, or what a business pays employees to produce one unit of output, decreased at a 0.8% rate after climbing 3.2% in the second quarter. It marked the first decline since late 2022. Quarterly productivity figures are quite volatile, but overall, the back-to-back advances suggest companies are stepping up efforts to improve efficiency. Despite high borrowing costs, business investment has held firm, supporting long-term economic growth.
3. Sharp U.S. Hiring Slowdown Signals Cooling Economy Ahead — Employers added 150,000 jobs in October, half the prior month’s gain and the smallest monthly increase since June, the Labor Department said Friday. The unemployment rate rose to 3.9%, up a half-point since April, and wage growth slowed. The figures are likely to bring the Federal Reserve’s historic interest-rate increases to an end by providing stronger evidence that higher borrowing costs have slowed the economy. The report could also mollify concerns that brisk consumer spending this summer would lead hiring or wages to reaccelerate.
4. Tech Giants Spend Billions on AI Startups—And Get Just as Much Back — Amazon, Google and Microsoft have spent the past year investing billions of dollars in artificial-intelligence startups—while also charging those fledgling companies a similar amount to use their cloud platforms. The deals are making the big tech firms the largest backers and most direct beneficiaries of these startups, reflecting how some of the AI boom’s biggest rewards keep going to the most powerful players. The value of the tech giants’ stakes could shoot up if the startups take off. And if not, they still will have turned chunks of cash into revenue.

The week ahead — Economic data from Econoday.com:

There will not be any re-cap for the week of Oct 23rd through Oct 27th, 2023. We are away for some needed R&R.

The staffs at EGS.

The week ahead — Economic data from Econoday.com:

“If you can keep your wits about you while all others are losing theirs, and blaming you. The world will be yours and everything in it…” — Rudyard Kipling

1. Retail sales rose 0.7% in September, much stronger than estimate — Retail sales rose 0.7% on the month, well above the 0.3% Dow Jones estimate, according to the advance report the Commerce Department released Tuesday. Gas station sales helped propel the headline number, rising 0.9% as prices at the pump accelerated.
Excluding autos, sales were up 0.6%, also well ahead of the forecast for just 0.2%. The so-called control group, which strips out items such as auto dealers, gas stations, office supply stores, mobile homes and tobacco stores and is used for the department’s GDP calculation, rose 0.6% as well. Sales gains were broad-based on the month, with the biggest rise coming at miscellaneous store retailers, which saw an increase of 3%. Online sales climbed 1.1% while motor vehicle parts and dealers saw a 1% increase and food services and drinking places grew by 0.9%, good for a yearly increase of 9.2%, which led all categories.
2. US Existing-Home Sales Sink to Lowest Level Since 2010 — Sales of previously owned US homes fell in September to the lowest level since 2010 as affordability worsened even further. Contract closings decreased 2% from a month earlier to a 3.96 million annualized pace, National Association of Realtors data showed Thursday. The median estimate in a Bloomberg survey of economists called for a reading of 3.89 million. The resale market remains historically depressed under the weight of decades-high mortgage rates. Not only are prospective buyers discouraged, but homeowners who previously locked in lower mortgage rates have no incentive to move, putting pressure on inventories and therefore prices.
3. The 10-Year Treasury Yield Came Close to 5% — The 10-year yield was down 0.05 percentage point on Friday, to 4.94%, after closing at 4.99% on Thursday then pushing closer to 5% in overnight trading. The yield has climbed 1.2 percentage points since July alone, as investors have increasingly priced in the likelihood that the Federal Reserve will lift interest rates higher than expected and leave them there longer. Data showing strength in the labor market, retail sales, and elsewhere in the economy have lifted expectations for inflation, prompting investors to factor in tighter monetary policy later into 2024. The higher yields on offer today are an attractive opportunity for investors looking for some greater risk-free income, but reaching them has been painful for those already holding bonds in their portfolios. Bonds’ prices fall as their yields rise.
4. Jim Jordan Is Removed as GOP Nominee After Third Loss in Speaker Vote — Rep. Jim Jordan was ousted as the GOP’s nominee to be House speaker, as colleagues voted to start over fresh next week after the fiery Ohio conservative failed for the third time to win a majority on the House floor. Jordan has faced opposition from GOP colleagues worried about how he would manage spending talks and avoid a government shutdown; allies of other party leaders who were pushed aside in favor of Jordan; and moderates from Democratic-leaning regions who see him as too stridently conservative.

The week ahead — Economic data from Econoday.com:

“ be fearful when others are greedy and to be greedy only when others are fearful.” — Warren Buffett

1. Producer Prices Came in Slightly Hotter than Expected — The producer-price index increased 0.5% from the prior month, a slowdown from August’s 0.7% increase, but still above economists’ expectations for 0.3% growth, according to FactSet. Excluding food and energy, core producer prices rose 0.3% for the month, slightly above expectations for a 0.2% gain. Leading the increase in September were prices for final demand goods, which increased 0.9%, and services, which were up 0.3%. For final demand goods, the increase can be attributed to higher energy prices, including a 5.4% rise in the index for gasoline.
2. Fed Minutes Show Officials Divided on Future Rate Rise — Federal Reserve officials were split over whether they would need to raise interest rates again this year when they decided last month to hold their benchmark policy rate steady. Officials most recently raised their benchmark federal-funds rate in July to a range between 5.25% and 5.5%, a 22-year high. They began lifting rates from near zero in March 2022. A run-up in long-term Treasury yields that began in August accelerated after last month’s meeting. If sustained, the rise in yields could moot the need for Fed officials to raise rates again this year. Economic projections released last month showed most officials had penciled in one more rate rise this year. But they made those projections before a further jump in long-term yields, which is raising rates on mortgages, auto loans and business debt.
3. US Consumer Prices Rise at Brisk Pace for Second Straight Month — The so-called core consumer price index, which excludes food and energy costs, increased 0.3% in September, Bureau of Labor Statistics data showed Thursday. Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI. That measure climbed 0.4%, boosted by energy costs. Recent inflation data underscore how a strong labor market is underpinning consumer demand, which risks keeping price pressures above the Fed’s target. At their meeting last month, a majority of officials saw a need for one more interest rate hike this year, and they may maintain that bias — despite a recent surge in bond yields — if inflation doesn’t cool further.
4. JPMorgan Posts Big Earnings Beat, Setting Bar High for Other Banks — JPMorgan Chief Executive Jamie Dimon celebrated the results but also urged caution amid a challenging macroeconomic and geopolitical backdrop, which includes quantitative tightening and wars in Ukraine and Israel. Bank stocks have been punished this year as rapidly rising interest rates have caused many problems for lenders. At first, banks could delight in the fact that higher rates allowed them to earn more interest on the loans they issue. But high rates also have the tendency to keep potential borrowers on the sidelines and pressure current borrowers into delinquencies. The jump in rates has also meant savers now have more options for where to park their nest eggs and earn yield, putting pressure on banks’ funding costs.

The week ahead — Economic data from Econoday.com: