Markets Blog
David Matzko, LPL Research
Weekly Market Performance for the week of December 25, 2023. Highlights include the ninth straight week of gains for the S&P 500 and Nasdaq Composite, retreating bulls, according to the most recent American Association of Individual Investors (AAII) report, higher gold and silver prices, and a jump in home prices in October.
Index Performance
U.S. and International Equities
Markets Mostly Higher: Both the S&P 500 Index and the Nasdaq Composite closed out the year with their ninth consecutive weekly increase, and the S&P 500 Index sits just below its January 2022 record close. The S&P 500 Index has experienced its longest winning streak since 2004, with nine consecutive weeks of increases.
According to the most recent AAII Survey, sentiment remains very bullish, but some investors have retreated from this stance. The percentage of bullish investors declined to just over 46% from 53% the prior week. Bearish investors increased to just over 25% from 21% the prior week. The bull-bear spread fell markedly from 32% last week to 21%, though it’s still bullish and well above the historical average of 2%
Given the market’s solid gains this quarter, concerns about stretched valuations have become more widespread as year-end approaches. Some investors believe equities are looking increasingly overbought as last week just under half of the S&P 500 traded at a 14-day Relative Strength Index (RSI) of 0.70, the most in 30 years. It is important to note that in strong uptrends/bull markets, overbought conditions can persist for meaningful periods.
Bottom-up earnings expectations for Q4 declined by almost 6% to $54.50 from $57.86. With that said, many analysts are more concerned about how companies will guide their outlook for 2024.
Fixed Income Higher: The Bloomberg Aggregate Bond Index ended higher this week as markets continued to price in aggressive rate cuts by the Federal Reserve (Fed) in 2024, and expectations for inflation declined. High yield bonds also gained ground this week amid generally favorable corporate credit conditions.
This year was expected by many analysts to be a positive year for fixed income but stubbornly high inflationary pressures, four Fed interest rate hikes, rating downgrades for U.S. debt from Fitch (and an outlook downgrade from Moody’s), elevated Treasury supply concerns, and the return of the Treasury term premia all supported a higher rate environment. In fact, those concerns helped push interest rates to their highest levels since 2007. But over the last couple of months, some of those concerns have abated, and yields have moved off their recent highs and are close to the same levels where they started the year.
Commodities Mixed: Energy prices declined for the last week of 2023. West Texas Intermediate (WTI) posted over 10% losses this year as some investors remain worried about China's demand. In addition, natural gas prices declined over 44% as warmer-than-expected weather caused demand to wane as many nations increased supplies in response to the start of the Ukraine-Russia war in 2022. This caused demand and prices to recede in 2023.
Gold prices were solidly higher this year as global central banks purchases helped the precious metal. Moreover, copper and silver finished little changed this year. Base metals were adversely affected by rising interest rates this year, as aluminum, nickel, lead, and zinc prices declined on the London Metals Exchange (LME).
Economic Weekly Roundup
October FHFA Home Price Index: The Federal Housing Finance Agency (FHFA) house price index (HPI) increased in October, coming in at just over 416. U.S. house prices increased by 0.3% from the previous month and by 6.3% from a year ago. After adjusting for inflation, the real index is up 0.4% month-over-month and up 4.8% from a year ago.
S&P/Case-Shiller October Home Price Index: Home prices increased 4.8% nationally in October compared to a year ago, according to the S&P CoreLogic Case-Shiller home price index. This represents a jump from the 4% annual increase in September. In addition, the reading marks the strongest annual gain seen this year amid higher interest rates.
November Wholesale Inventories: November wholesale inventories declined 0.2% month-over-month, which matched economists' expectations. This marked the second consecutive decrease in wholesale inventories, driven by an ongoing decline in non-durable goods. On an annual basis, wholesale inventories went down by 3.1% in November.
Weekly Employment Report: Both continuing and initial claims came in above analysts’ expectations and the prior week’s reading. LPL Research believes the labor market is expected to further loosen over the coming months as companies respond to slowing demand, partly driven by the lagged effects of tighter monetary policy.
The Week Ahead
The following economic data is slated for the week ahead:
Tuesday: S&P Global PMI Manufacturing (Dec), construction spending (Nov)
Wednesday: ISM Manufacturing (Dec), JOLTS Job Openings (Nov), Federal Open Market Committee (FOMC) Minutes
Thursday: Initial and continuing jobless claims, ADP Employment Survey (Dec), PMI Composite (Dec), S&P Global PMI Services (Dec)
Friday: Hourly earnings (Dec), average workweek (Dec), manufacturing payrolls (Dec), nonfarm payrolls (Dec), private nonfarm payrolls (Dec), December unemployment, durable orders (Nov), factory orders (Nov), ISM Services (Dec)
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
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Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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