• 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

Picture of the Week

Fuzer Castle, Hungary

All content is the opinion of Brian Decker