Monthly Market Update

Growth Slowing

• • Gross Domestic Product (4Q23): The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2023 is 2.5% on January 3, up from 2.0% on January 2.
  • Employment (December): Total nonfarm payroll employment increased by 216,000 in December, and the unemployment rate was unchanged at 3.7%. The labor force participation rate was 62.5%, down by 0.3% from November. Employment continued to trend up in government, health care, social assistance, and construction, while transportation and warehousing lost jobs.
  • Inflation (November): The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1% in November on a seasonally adjusted basis, after being unchanged in October. Over the last 12 months, the all items index increased 3.1% before seasonal adjustment. The index for all items less food and energy rose 0.3% in November, after rising 0.2% in October. The all items less food and energy index rose 4.0% over the last 12 months, as it did for the 12 months ending October.
  • The Producer Price Index (PPI) (November): PPI for final demand was unchanged in November, seasonally adjusted. On an unadjusted basis, the index for final demand rose 0.9% for the 12 months ended in November.
  • Retail and Food Services Sales (November): Advance estimates of U.S. retail and food services sales for November 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $705.7 billion, up 0.3% (±0.5%) from the previous month, and up 4.1% (±0.7%) above November 2022.
  • Personal Income and PCE (November): Personal income increased $81.6 billion (0.4% at a monthly rate) in November, according to estimates released by the Bureau of Economic Analysis. From the preceding month, the PCE price index for November decreased 0.1%. Excluding food and energy, the PCE price index increased 0.1% from October. From the same month one year ago, the PCE price index for October increased 2.6% (down from 2.9%). Food prices increased 1.8% and energy prices decreased 6.0%. Excluding food and energy, the PCE price index increased 3.2% from one year ago (down from 3.4%).

December Pivot by the Fed Tees Up Rate Cuts in 24

The final FOMC of 2023 took place on December 13^th. The Committee decided to maintain the target range for the federal funds rate at 5.25% to 5.50%. As of this writing, markets are pricing in over 95% chance of the Fed maintaining rates at the current level for the January 31, 2024 meeting, and a less than 5% chance of cutting rates by +25 bps.

Highlights of FOMC December Meeting Statement and Minutes:

• Fed Maintains Rates, For Now: “In determining the extent of any additional policy firming that may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
• Inflation Coming Down: “The staff revised down their inflation forecast, reflecting lower-than-expected incoming data—including the November CPI and producer price index—and their judgment that inflation would be less persistent than in the previous projection. Measured on a four-quarter change basis, total PCE price inflation was expected to be somewhat below 3 percent this year, with core PCE price inflation somewhat above 3%.”
• Cutting Rates in 2024: “Almost all participants indicated that, reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024.”

Monthly and YTD returns

Definitions:

Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).

• • GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
  • The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
  • Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
  • The Consumer Price Index (CPI):Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
  • The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
  • The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work. Source: Bureau of Labor Statistics (BLS).
  • Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
  • Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
  • The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
  • The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

  Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

  Financial Markets – Monthly and YTD returns (Table): Asset class performance is in USD and refers to the following indices: Equities: US Large Caps (S&P 500), Emerging Markets (MSCI EM), Europe (MSCI Europe), Japan (MSCI Japan). Fixed Income: 10-Yr. US Treasuries (BofAML US Treasury Current 10-Yr.), Emerging Markets Sovereign (USD) (JPM EMBI Global), US High Yield (BofAML US HY Master II), US Investment Grade (BarCap US Aggregate Bond), and Developed Markets Sovereign (excl. US) (JPM GBI Global Ex US). Source: Morningstar.

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