US Economy

Treasury yields rose sharply last week, …

… climbing further last Friday morning.

The tightening in US financial conditions since the September FOMC meeting is equivalent to some 80 basis points worth of Fed rate hikes, according to Goldman.
Economic activity has been surprising to the upside. This chart shows the consensus estimate (over time) for last quarter’s GDP growth.

Economists have been raising their inflation forecasts for 2024 to 2.6%
As a result, fewer rate cuts are expected next year, with forecasters boosting their projections for Treasury yields.
Household wealth has grown in recent years, which could support consumption.
Subprime auto loan delinquencies hit a record high.
The budget deficit was wider than expected in September, ending the year nearly $1.7 trillion in the red.
While a November rate increase is off the table, the market has been pricing in some probability of a hike in January.
The deceleration in broad money supply growth should assist the Fed in its battle against inflation.

Economists have been downgrading their forecasts for next year’s housing market activity.
Building permits:

Existing home sales:

The share of house purchases that fall through has been rising.

Buying a home is now 52% more expensive than renting.
The Philly Fed’s regional services sector activity is very sluggish.

The Richmond Fed’s services report also shows softening activity and outlook.

US truck tonnage is down from a year ago.

Mortgage rates near 8% are exerting downward pressure on demand for housing loans.
The median new home sale price is down 12% from a year ago.

Measured in months of supply, inventories of new homes declined.
This chart shows year-over-year home price changes by metro area.

The latest PMI report from S&P Global signals further easing in US consumer price gains.
The average interest rate paid by US small firms has reached 10%.

US economic growth accelerated last quarter, driven by robust consumer spending. However, most economists expect a slowdown ahead.
Inventory accumulation boosted GDP growth.
Housing investment saw its first increase in ten quarters.
Core inflation cooled in Q3 to 2.4%.
Durable goods orders surged in September, boosted by aircraft orders.
Initial jobless claims remain exceptionally low despite the massive increase in interest rates in this cycle.
September pending home sales surprised to the upside but remained at multi-year lows.

Market Data

The S&P 500 closed below its 200-day moving average.

Seasonals suggest the S&P 500 could trade in a choppy range before a December rally.
Market breadth continues to deteriorate.

Analysts’ earnings downgrades are outnumbering upgrades.

Corporate guidance has also been soft.
Below are a couple of equity factor trends (year-to-date).
High-dividend companies:

CTAs are bearish.

Source: Deutsche Bank Research

But JP Morgan’s clients are becoming more constructive on stocks.

The Nasdaq Composite is at the 200-day moving average.

Breadth remains very weak as the average S&P 500 stock is down ~21% from its one-year high.

Only 147 S&P 500 stocks are above their 200-day moving average.

Great Quotes

“All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” – Schopenhauer