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Retirement Architects Weekly Market Review: November 24th, 2023

by | Nov 27, 2023 | Market Review

Weekly Market Report: November 24th, 2023

Markets last week, effectively a three-day workweek, were characterized by low volumes, a handful of economic reports, and hopefully a good dose of family, friends, and feasts. Global equity markets saw the S&P 500 up 1% and NASDAQ up 0.9%, both delivering a fourth consecutive week of gains. Emerging markets turned in a gain of 0.6% and we also saw a nice rally in developed internationals of 2.4%. Bond yields were relatively quiet with a small and parallel move slightly higher, closing with 10yr yields at 4.47%. Both the USD (-0.50%) and commodity markets (-0.40%) notched slight declines on the week.

Market Anecdotes

  • 3Q earnings season is over, ending with a healthy earnings growth rate of 4.3% YOY totaling $487.1b in aggregate. The beat rate (LT average) 81.9% (66%), miss rate 13.7% (20%), and magnitude 7.3% (4.1%) all compared favorably relative to their respective long-term averages.
  • Decent earnings, disinflation trends, peak FOMC rate cycle, easing financial conditions, and increased soft landing expectations have all contributed to one of the best Novembers for the S&P 500 on record thus far, currently up 8.8% with a few days remaining.
  • For all the S&P headlines in 2023, non-U.S. markets including Japan (+15.8%), Germany (+17.2%), France (+16.4%), Emerging Europe (+27%), and Brazil (+23.7%) have impressed as well. Unfortunately, the same cannot be said for commonwealth countries and China (-6.3%).
  • FOMC minutes released last week showed consensus on a cautious approach regarding additional rate hikes and an expectation that tight policy will continue to weigh on growth and inflation looking into 2024. Market rate cut expectations remain aggressive regardless.
  • Interest rates have fallen from just under 5% (10yr) prior to the November FOMC meeting to under 4.5%, assisted by peak Fed, continued disinflation, and slowing growth narratives, the latter bolstered last week by slowing PMIs and durable goods orders reports.
  • The resilient U.S. consumer has been a key growth driver over the past two years which begs a credit health check in addition to consumer ‘balance sheet’ narratives. A recent look at consumer loan delinquencies from Strategas does seem to square with a cautious view of 2024.
  • The soft-landing narrative has been bolstered by the sample based estimates (2mo lag) of monthly payroll growth which has shown downward revisions every month this year with the exception of July – a sign of overstated 2023 strength following understated strength in 2021.
  • The Biden-Xi summit went relatively well but, even more so than U.S. elections, Chinese geopolitical risk is centered around the January 13th Taiwan elections and whether a pro-mainland government will assume power.
  • A Qatar negotiated temporary ceasefire in Gaza brought temporary reprieve to the war between Hamas and Israel with hostage and prisoner exchanges occurring over the weekend.

Economic Release Highlights

  • U.S. PMI for November registered a composite reading of 50.7 with Manufacturing (49.4 vs 49.9) and Services (50.8 vs 50.5) both generally in line with their respective consensus forecasts.
  • Eurozone PMI for November registered a composite reading of 47.1 with Manufacturing (43.8 vs 43.3) and Services (48.2 vs 48.0) both generally in line with their respective consensus forecasts.
  • UK PMI for November registered a composite reading of 50.1 with Manufacturing (46.7 vs 45.0) and Services (50.5 vs 49.6) slightly better than the consensus forecasts.
  • Existing Home Sales declined 4.1% MOM in October to 3.79M, down 14.6% YOY.
  • Durable Goods Orders contracted 5.4% in October, below the low end of the (-4.4% – 2.8%) range and consensus spot forecast of 3.2%.
  • U of M Consumer Sentiment Index for November was revised higher from 60.4 to 61.3 in the final release.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Retirement Architects Weekly Market Review: November 17th, 2023

by | Nov 20, 2023 | Market Review

Weekly Market Report: November 17th, 2023

Markets last week rallied for a third consecutive week on the back of easing overall financial conditions thanks in large part to disinflation, soft landing, and peak Fed narratives. There was a fair amount of economic data, including October CPI, which leaned into the prevailing bad news is good news sentiment of late. Equity
markets were up sharply with U.S. (+2.24%), developed (+3.98%), and emerging (2.63%) all participating. Small cap U.S. stock jumped nearly 5.5% on the week. Bond markets saw the rally in Treasuries continue and the curve flatten, leaving the 10yr UST yield at 4.44%, down from 4.98% one month ago. The counter cyclical USD fell 1.84% while commodity markets were relatively flat thanks to a late week rally in oil which washed out losses from early in the week.

Market Anecdotes

  •  A healthy easing of financial conditions since late October has contributed to stock markets rallying nearly 10% and bond yields falling nearly 0.50% – very healthy gains across the majority of financial market assets as we work through a (seasonally) favorable end to the year.
  • Numerous economies including the U.S. are reporting slowing growth and disinflation trends. The most recent Atlanta Fed GDPNow model forecast for 4Q U.S. GDP is 2%.
  • The soft CPI print washed out market expectations of any remaining FOMC rate hikes which are now pricing cuts of 25bps by June and 50bps by July. However, Bianco Research issued a reminder that the next two months present some difficult YoY base effect bogeys.
  • Nineteen Fed speaking engagements last week noted favorable disinflation trends but also made clear it is far too early to declare victory – avoiding any hint of an all-clear signal for markets.
  • A Preqin report on private credit highlighted the significant growth of the asset class to roughly $1.6t in AUM and nearly $500b of dry powder across various types of private credit strategies.
  • The House and Senate passed a CR, avoiding a government shutdown, covering operations through late January to early February.
  • An FT article last week highlighted net purchases by major central banks totaled nearly $20t from 2009 through 2022 with the exit from central bank QE programs a significant source of uncertainty looking out over the next several years.
  • A weaker USD, which touched a 2 ½ month low last week, has been fueled by disinflation momentum implying a pull forward of Fed rate cut expectations.
  • A report late last week that KSI may extend their voluntary cut and OPEC+ may cut an additional 1M bpd at this week’s meeting sparked a late week rally in crude oil prices.

Economic Release Highlights

  • Headline and core CPI in October rose 3.2% and 4.1% with MOM readings 0% and 0.2% respectively, all registering 0.1% under their consensus forecasts.
  • October Retail Sales declined 0.1%, slightly better than the expected -0.3% decline. Ex-Vehicles (0.1% vs – 0.1%) and Ex-Vehicles & Gas (0.1% vs 0.2%) were also generally in line with consensus.
  • Weekly unemployment claims took the 4-week moving average to 220,250, a fifth consecutive weekly increase. Continuing Claims of 1.865mm are now at their highest in two years.
  • October Industrial Production declined 0.63%, the largest monthly decline since December 2022 and below the long-term average reading of 0.26%.
  • The NFIB Small Business Optimism Index in October registered 90.7, slightly above consensus 90.5 and within the forecast range.
  • Housing Starts (1.372mm) and Permits (1.487mm) rose slightly in October versus the prior month reading.
  • NAHB/Wells Fargo Housing Market Index fell a fourth consecutive month to 34.0.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Retirement Architects Weekly Market Review: November 10th, 2023

by | Nov 13, 2023 | Market Review

Weekly Market Report: November 10th, 2023

In a rather uneventful week last week, equity markets added incrementally to the extraordinarily strong performance the week prior. The S&P 500 tacked on 1.3% thanks to strong performance from mega cap technology names which took year to date gains back to 15%. Other equity asset classes didn’t fare as well last week with small caps (-3.15%), developed international (-0.80%) and emerging markets (-0.29%) all in the red. The big bond market rally took a breather last week with some weakness in the belly of the curve (2y-5y). Commodity markets went the way of WTI oil last week, both down 3%-4% while the USD enjoyed a slight rebound, closing up 0.80% on the week.

Market Anecdotes

  • Economic risks have decreased marginally thanks to the recent sharp decline in developed market bond yields which feeds both trade and risk appetite globally.
  • Third quarter earnings season is drawing to a close, currently on pace for 4.1% earnings growth, with results coming in handily above expectations. Fourth quarter consensus is calling for 3.2% but 2024 estimates are currently at 6.7% for Q1 and 10.5% for Q2.
  • Nineteen FOMC speaking engagements last week were punctuated by some hawkish comments from Jerome Powell who made it clear that policy may not yet be sufficiently restrictive and additional hikes are not off the table.
  • An abnormally weak 30yr UST auction contributed to market anxiety later in the week as investors attempted to calibrate global treasury appetite in light of the increase in supply.
  • A Bloomberg estimate of annualized interest payments on the US government debt climbed over the $1t mark in October.
  • The NY Fed Consumer Credit report showed a sharp rise in delinquencies with credit card loans now above 8%, well up from the 4% low in Q4 2021.
  • Fewer job openings, slower employment growth, and incrementally higher unemployment have economists growing more cautious and policy makers breathing and as restrictive policy may finally be taking effect.

Economic Release Highlights

  • U of M Consumer Sentiment registered 60.4, well under consensus forecast of 63.7 and a notable decrease versus the prior month reading of 67.9. Longer-term inflation expectations increased to 3.2%.
  • Following a softer than expected October jobs report (150k vs 180k), we’ve seen a slight uptick in weekly unemployment claims to the current 4-week average of 212,250.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Retirement Architects Weekly Market Review: October 13th, 2023

by | Oct 16, 2023 | Market Review

Weekly Market Report: October 13th, 2023

Last week the world began to sift through the aftermath and implications of the terror attacks in Israel which, beyond the horrific human toll, sent shock waves through global geopolitics and financial markets, beginning with interest rates and the oil sector. Global equity markets remained relatively calm with the S&P 500 up 0.46% and developed and emerging equity markets both relatively flat. The bigger moves on the week were in areas you might expect including oil (+6%), gold (+5%), and safe haven USD (+0.57%) and treasury bonds which saw yields decline across the curve and by double digits for longer maturities.

Market Anecdotes

  • Aside from the obvious human tragedy, the peculiar timing of the Hamas incursion into Israel last weekend has injected tangible uncertainty into global energy markets and geopolitical anxiety regarding the potential for escalation in the Middle East.

  • We saw a notable reversal in interest rates last week likely due to the geopolitical catalyst but also nudged by a series of dovish Fed comments noting high UST rates as lessening the need for additional tightening, suggestions that the implied market terminal rate is too high and downplaying the September CPI report.

  • High and rising UST rates mean higher debt service for businesses, government, and consumers as well as higher costs for projects and investments and mark to market losses on bond portfolios.

  • Torsten Slok from Apollo made note that with a 5.25-5.50% Fed funds rate and an estimated 2.5% neutral rate, corporate debt service coverage ratios are beginning to grind lower. Bianco Research echoed the same sentiment from the perspective of consumer interest expense.

  • Thirteen Fed speaking engagements and the release of October’s FOMC minutes reinforced a ‘no change’ rate decision at the upcoming November 1st FOMC meeting, currently priced at an 87% probability in the futures market. Future meetings carry only 32%-42% probabilities of a hike.

  • Third quarter earnings season kicked off with major banks reporting last week. Bottom line consensus is calling for -0.3% earnings growth, which if exceeded would mark the first positive YOY earnings results since 3Q22. Projected revenue growth is 1.7% and margins are expected to improve.

  • It was interesting to see UST yields decline sharply on the back of a blowout jobs report, relatively benign inflation report, and continually improving economic outlook.

Economic Release Highlights

  • September headline and core CPI registered 3.7%/4.1% YOY and 0.4%/0.3% MOM.

  • The September NFIB Small Business Optimism Index declined slightly from 91.3 to 90.8, just short of the consensus forecast of 91.2.
  • Consumer Sentiment for October registered a five-month low of 63.0, below consensus estimate of 67.5 and the prior month’s reading of 68.1.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Retirement Architects Weekly Market Review: September 15th, 2023

by | Sep 18, 2023 | Market Review

Weekly Market Report: September 15th, 2023

Market focus points last week included some stimulative policy moves in China, risk of waning disinflation momentum, U.S. auto industry strikes, and some final key economic data points heading into this week’s closely watched FOMC meeting. Equity and bond markets responded in line with a higher for longer fashion, as U.S. equity markets closed down slightly while interest rates closed the week right in line with late August highs at levels not seen since 2007.

Market Anecdotes

  • Inflation data last week including CPI, PPI, and fundamental economic activity added anxiety to markets along the lines of the second wave inflation narrative which argues we should not be expecting a clean straight line to 2% inflation and the post pandemic world may just be different.

  • Last week’s economic data isn’t expected to influence the FOMC market base case of no change in Fed Funds rate this week but a possibility of one more move higher before year end.

  • The NY Fed Survey of Market Participants showed only a 5% chance of peak Fed funds surpassing 6%, relatively in line with futures market pricing.

  • The ECB delivered a dovish 25bps hike last week where internal projections see inflation of 5.6% in 2023 falling to 3.2% and 2.1% in ‘24 and ‘25 respectively – a public forecast followed by Lagarde presser stating these high levels maintained long enough, should drive inflation down.

  • Eaton Vance published LCD data illustrating S&P’s default forecasts for the coming six months with the current rate of 1.7% either rising to 4.5% (pessimistic), falling to 1% (optimistic), or leveling off to 2.5% (base case). Distressed loan data is also signaling some turbulence ahead.

  • A research note from Goldman last week on the U.S. equity market concentration issue painted a stark contrast between U.S. and non-U.S. markets while an unrelated note from J.P. Morgan illustrated the cost of higher rates hitting smaller companies disproportionately harder as well.

  • The UAW implemented targeted strikes at the big three automakers last week in a widely expected move given how far apart both sides are at the negotiating table.

  • The PBoC cut banking system required reserves and injected $25b into the system last week, raising hopes for recovery in China and renewed focus on stimulus measures.

Economic Release Highlights

  • August headline and core CPI registered 3.7%/4.3% YOY and 0.6%/0.3% MOM.
  • August headline and core PPI registered 1.63%/2.16% YOY and 0.74%/0.19% MOM.
  • Retail Sales for August of 0.56% (+2.5% YoY) came in higher than the 0.1% expected and above the prior two months’ pace, but gasoline sales seem to have played a large part in the report.
  • Industrial Production in August topped forecasts, growing 0.38%, down slightly from the prior month but above the long-term average of 0.26%.
  • U of M Consumer Sentiment fell from 69.5 to 67.7 (-2.6%) in September. It is up 15.53% from this time in 2022 but remains well below its historical average of 86.
  • The NFIB Small Business Optimism Index for August declined 0.6 to 91.3, slightly below consensus call of 91.5.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Retirement Architects Weekly Market Review: September 8th, 2023

by | Sep 11, 2023 | Market Review

Weekly Market Report: September 8th, 2023

The holiday-shortened week gave us a light economic calendar and a mix of headwinds for risk assets including a backup in rates, a continued rise in energy prices, labor/geopolitical disputes, and some economic surprises translating to ‘good news is bad news’ momentum for stock prices. The S&P 500 fell 1.29% but small caps fared much worse, down 3.5%-4.5%. International developed markets were down 1.6% on sluggish economic data out of Germany while emerging markets (-1.8%) were again weighed down by China. Rates drifted higher with the biggest move in the belly of the curve, pushing the 10yr yield back above 4.25%. The USD (+0.82%) continued to rally off its mid-July low while commodities (+1.34%) rallied again thanks to another move higher in oil prices, now north of $87/barrel.

Market Anecdotes

  • Markets anticipating this week’s FOMC meeting and fresh inflation data have settled into a “good news is bad news” narrative highlighting risk asset opposition to a higher rates for longer path of monetary policy over the coming 12-18 months.

  • Adding to the complicated landscape for monetary policy is WTI oil prices surging to their highest levels since November and Brent surpassing $90 for the first time this year. Drivers include OPEC 2.0 extending production cuts and resilient demand from the U.S., EU, and China.

  • BofA FMS highlights how unlevered asset managers are holding near record net long positions in 10yr Treasury futures (a bet on falling bond yields) while leveraged fund COT data shows a near record net short position in 10yr Treasury futures (a bet on rising bond yields).

  • USD strength has been notable with the Euro falling versus the USD for an eighth consecutive week, USD/CNY hitting its highest level since December 2007, and the overall trade weighted USD bouncing higher after a fall from record highs.

  • A research note from Bianco Research reminds us of the high correlation between bank lending standards and bankruptcy filings, while credit spreads continue to see blue skies ahead, injecting a bit of caution into the summer risk asset rally.

  • Tightening lending standards leading to a credit cycle across commercial credit and real estate is becoming clear with regional, international, and local banks alongside the CMBS market holding the lion’s share of real estate loans and buy side investors of all colors holding commercial loans.

  • Apollo made note last week of the estimated $7.6trn in US government debt maturing over the next year which logically should translate to persistent upward pressure on interest rates.

  • The impact of high mortgage rates on mortgage applications and existing home sales is clear while renting as an alternative is being accommodated by record high multi-family construction.

Economic Release Highlights

  • The ISM Services Index exceeded forecasts and the high end of the range, coming in at 54.5 versus a 52.4 consensus in August. The final PMI Services Index was revised down to 50.5.

  • Initial Unemployment Claims of 216k took the 4-week average down from 237.5k to 229.25k.
  • China’s August Caixin services PMI fell to 51.8 from 54.1 and German industrial orders fell 11% in July.
  • Durable Goods New Orders declined 5.23% in July after a strong 4.29% reading in June.
  • July Factory Orders declined by 2.1%, slightly less than the -2.6% expected.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.