U.S. stocks are again near their summer highs, a big rebound as investors enter the holiday season with Black Friday just days away.
Shopping excitement expected on Friday, the day after Thanksgiving, kicks off a holiday spending spree that could help stocks bounce back after this month’s surge.
“With consumers feeling employed and relieved, the holiday selling season is off to a good start,” analysts at Yardeni Research said in a Nov. 16 note. “A solid start to the holiday shopping season.”
But some investors worry that the rally in US stocks in November has been too much, as the S&P 500 index is on track for its biggest monthly gain of the year after gains in both bonds and equities. The S&P 500 finished Friday 1.6% below its 2023 closing high in late July, according to Dow Jones Markets data, after rising 7.6% this month for a third straight week.
“It’s too much,” Bob Elliott, co-founder and CEO of investment firm Unlimited Funds, said in a phone interview. “Financial conditions have eased meaningfully.”
The easing of financial conditions follows the U.S. Treasury Department’s quarterly refunding announcement in early November, which showed it will issue fewer long-term Treasury bonds than the market expected, Elliott said. This allayed investors’ concerns about appetite for long-term US government debt amid a flood of Treasuries in the market.
As a result, long-term Treasury bond prices rose, pushing yields lower. And this, in turn, has helped push stock prices higher.
“The policy was relaxed by the Treasury,” Elliott said. “It’s a catalyst for the real economy and basically takes us a few steps back into the tightening cycle.”
The Federal Reserve has tightened its monetary policy by raising interest rates to try to slow the economy and reduce inflation that remains above its 2% target. Inflation as measured by the consumer-price index was stable in October, falling to 3.2% on a year-on-year basis. This is down from 3.7% in September and as high as 9.1% in June 2022.
Investors were encouraged. Treasury yields fell after the release of the consumer-price-index report on Nov. 14, extending their decline this month, while stocks climbed.
Stocks and prices of long-term Treasury bonds are rising in November.
Vanguard Total Stock Market ETF VTI, which tracks U.S. equities, and Vanguard Long-Term Treasury ETF VGLT, each gained more than 7% this month through Friday, according to FactSet data.
The yield on the 10-year Treasury note BX:TMUBMUSD10Y
It was little changed at 4.441% on Friday, but was down about 43 basis points so far this month based on levels at 3 p.m. Eastern time, according to Dow Jones Markets data.
Don Macri, vice president of Citizens Financial Group, told MarketWatch in an interview that the recent decline in Treasury yields saw him see it as an opportunity to access the debt markets to advise the bank’s corporate clients to take advantage of the decline in borrowing costs. Motivated to take advantage. Refinancing is needed in the next three years.
Macri, who heads commercial banking at Citizens, also said his corporate clients are keeping an eye on consumer spending, especially around the holiday shopping season.
“In recent days, Home Depot HD and Target TGT reported revenue declines, but results beat analysts’ expectations, while TJX TJX – the strongest of the three retailers – reported strong growth in quarterly results and indicated optimism about the holiday sales season,” according to the Yardeni Research note.
“Consumers’ excess savings in 2022 were extremely important as real disposable personal income declined sharply in 2022, partly offset by inflation,” Jan Hatzius, chief economist at Goldman Sachs Group, said during an online media briefing on 2024 on Nov. 16. Because of the increase.” Perspectives from the Bank’s Global Investment Research Group.
While additional savings are now “small”, real disposable income is growing at a “very healthy pace of about 4% in 2023”, Hatzius said. “We’re still expecting about 3% in 2024, which should be enough to get consumption growing again, at a decent pace, at 2% or so.”
U.S. retail sales declined 0.1% in October, the first decline in seven months, according to Yardeni analysts, although not all sectors experienced declines. “The latest data shows that consumers continue to spend more at restaurants at a clip compared to a year ago,” he said.
Reading: Credit-card, auto-loan ‘stress’ increases as US consumers fall behind on payments
Meanwhile, the US unemployment rate remained low at 3.9% in October.
“We are expecting no material increase in the unemployment rate next year” and only a 15% chance of a recession over the next 12 months, Hatzius said during a media briefing.
According to Elliott, when it comes to the consumer, “it’s all about employment.” “Income growth is much stronger than price growth,” he said, “improving real spending power for households.”
In its inflation fight, the central bank has raised its benchmark rate to a 22-year high from 5.25% to 5.5%, with Fed Chairman Jerome Powell recently describing the central bank’s monetary policy as “restrictive”.
But Elliott said, “if the economy is OK at these rate levels,” then “by definition” they are not restrictive and rates could remain high for a long time.
“The macroeconomy is moving very slowly,” he said, and a decline in asset prices may be needed to prompt the Fed’s tightening cycle.
U.S. stocks closed higher on Friday, with the Dow Jones Industrial Average DJIA, S&P 500 SPX and Nasdaq Composite Comp each rising for the third consecutive week. The S&P 500 is up 9.6% over the past three weeks, its biggest three-week percentage gain since June 2020, according to Dow Jones Markets data.
Reading: Walmart CEO expects to see ‘deflation era’ in coming months
Time to buy quality stocks?
Amid signs of slowing US growth, “now is the time to invest in quality stocks,” according to a UBS research note on Friday.
“Quality stocks have historically outperformed in the late stages of the business cycle, including periods of economic contraction,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth. So portfolio protection should be provided.” Management said in the note. “The pursuit of quality is also consistent with our priority for American technology companies.”
In the view of Tom Hancock, head of renowned investor Jeremy Grantham’s GMO-focused equities team, quality companies, which are naturally defensive with strong balance sheets and consistent cash flows, may also benefit from “valuing power”. Is.
Hancock, portfolio manager of the company’s recently launched GMO US Quality ETF QLTY, said in an interview with MarketWatch that he looks for quality stocks “at a fair price” that span a variety of sectors such as technology, health care and consumer. can be found in. Staple.
“Quality is a characteristic that is likely to perform well in this environment,” David Kostin, chief U.S. equity strategist at Goldman, said during a media briefing. He said quality stocks can be defined as having larger market capitalization and more stable revenue and sales growth, which will help them outperform if economic growth forecasts fail.