Rating: Neutral
Stock Market Performance
Why we watch it:
The stock market tends to be forward looking and it is a leading indicator of economic growth.
Recent Highlights:
Domestic and international equities both posted losses for the month of October. The S&P 500 was down -2.1% in October. Domestic mid- and small-cap equities decreased -5.0% and -6.8%, respectively. The S&P 500 is down -8.3% over the last three months, but up 10.1% over the last twelve months.
The international index (MSCI ACWI ex-US) was down -4.1% in October. The index is down -11.3% over the last three months, but up 12.7% over the last twelve months.
Equities experienced a tough October despite strong economic growth numbers. Mixed earnings results, surging Treasury yields, geopolitical tensions, and Fed rate hike uncertainty scared markets during the month.
*Neutral Since November 2023
Rating: Positive
Consumer Spending
Why we watch it:
Over 70% of the U.S. economy is based on personal consumption. A reduction in consumer spending will cause slower growth in the economy.
Recent Highlights:
Consumer spending increased 0.7% in September, above the consensus of 0.4%. Consumer spending has been very strong over the last several months, but can still be volatile from one month to the next.
The first estimate of Q3 2023 consumer spending recorded a 4.0% increase.
Personal income increased 0.3% in September, slightly below expectations.
Positive Since June 2022
Rating: Negative
Manufacturing Activity
Why we watch it:
The health of the economy is dependent on the health of the manufacturing sector. Historically, it has been the path to development and an important driver of economic growth. Domestic manufacturing activity is tracked by the Institute of Supply Management (ISM), which releases a monthly index while global activity is tracked by J.P.Morgan and IHS Market in association with ISM and IFPSM. The index monitors data like employment, production inventories, new orders and supplier deliveries. It is based on surveys of more than 300 manufacturing firms, and it’s considered an important economic measure. The index value ranges between 0 and 100. A value below 50 may indicate a slowdown in the economy, especially if the trend persists over several months. A value above 50 likely indicates a time of economic growth. Similarly, Global Manufacturing PMI is produced by IHS Markit in association with ISM and IFPSM. It is compiled by IHS Markit from responses to montl;hly questionnaires sent to purchasing managers in survey panels in over 40 countries, totaling around 13,500 companies. It has the same value ranges as the ISM manufacturing report.
Recent Highlights:
ISM manufacturing reported 46.7 in October, below expectations. This reading is below the 50.0 break-even point, signaling a slowdown in the manufacturing sector. This is the twelfth month in a row below 50.0. New orders reported 45.5, also below the 50.0 mark.
Global PMI posted a reading of 48.8 in October. The main factor for lower production was a further contraction in new order intakes, as well as job losses. Optimism has decreased leading to cutbacks in employment and purchasing inventories.
Negative Since July 2023
Rating: Negative
Consumer Price Stability
Why we watch it:
Mild inflation is good for the economy, because it promotes consumption without destroying the value of people's savings. If you know something will be going up slightly in price down the road, you'll be more likely to purchase it now. If this effect is mild, it doesn't hurt savings rates very much. Deflation, however, punishes an economy because it hurts consumption. If you know something will be cheaper tomorrow or next year, you're more likely to wait until tomorrow to buy it. The Fed’s inflation target is 2 %.
Recent Highlights:
Headline CPI increased 0.4% in September. Over the last 12 months, CPI rose 3.7%. This is in line with expectations, but the third month in a row with an increasing year-over-year reading. Core CPI, which excludes food and energy, increased 0.3% in September. Over the last 12 months, core CPI rose 4.1%. This is below expectations.
Negative Since: June 2021
Rating: Neutral
Housing Market
Why we watch it:
The economy typically benefits directly and indirectly from increased housing activity. It is estimated that for every $100 in value resulting from housing construction, an extra $40-$80 is added to the economy due to housing-related spending.
Recent Highlights:
Total existing home sales decreased -2.0% in September to a seasonally adjusted annual rate of 3.96 million units. Sales in total fell -15.4% from one year ago.
The median existing-home price in September was $394,300. This is the third consecutive month of year-over-year price increases. Unsold inventory is at about a 3.4-month supply. A three to six-month supply is considered a healthy balance between supply and demand.
New home sales increased 12.3% in September to a seasonally adjusted annualized rate of 759,000. The median sale price of new homes sold in September was $418,800. Unsold inventory is at about 6.9-month supply. Note that the new home sales report is typically very volatile and the data is frequently revised.
The 30-year fixed mortgage rate ended October around 7.8%. This is the highest rate since November 2000.
Neutral Since October 2022
Rating: Positive
Volatility
Why we watch it:
VIX is the symbol for the Chicago Board Options Exchange's volatility index. It’s a weighted mix of the prices for a blend of S&P 500 Index options, from which implied volatility is derived. In other words, it measures how much people are willing to pay to buy or sell the S&P 500. The VIX goes up when there’s turmoil in the market, and goes down when investors are content or at ease with the economic outlook.
We like to watch the VIX, because it measures the cost of buying insurance for stock protection (through options). When the cost of protection is high, volatility is usually high, and the potential for declining stock values is higher.
Recent Highlights:
The VIX started October around 17.3 and ended the month at 18.1. It remained relatively calm in September with only a quick spike near the middle of the month. The historical average is 19.2.
Positive Since July 2023
Rating: Positive
TED Spread
Why we watch it:
The TED Spread is the banks’ cost of borrowing short-term money minus the Treasury’s cost of borrowing short-term money. The difference between the three-month LIBOR interest rate and the three-month Treasury Bill interest rate measures the degree of riskiness of the bank lending market. When the spread is significant, banks worry about being repaid when loaning money to other banks, thereby creating uncertainty. This can cause slower growth in the economy.
Recent Highlights:
The current spread at the end of October was 0.31% (3-Month LIBOR 5.64% – 3-Month Treasury Bill 5.33%). Both indicators in the TED spread increased slightly. The current TED spread of 0.31% is below the historical average spread of about 0.57%.
Positive Since June 2020
