• Earnings seasons rolls on, and we got the last batch of major macro data before the Fed meeting takes place this Wednesday. We are expecting the Fed to remain on hold, despite the hot 3Q23 GDP print last week. The advance estimate for third quarter GDP came in at 4.9%, compared to the consensus for 4.5%. The strong quarterly growth was partly due to inventory builds and government spending, which can be somewhat volatile. The Atlanta Fed’s GDPNow forecast for 4Q23 is coming at a more normalized 2.3% rate based on its first estimate.

• Oil was volatile as Israel began a ground invasion in Gaza, but it is trading down this morning at around $84.40. Gold continues to rally, briefly touching the $2,000 per ounce mark and at $1,995 as of this writing.
• In other macro data last week, September PCE numbers came in slightly hotter than expected. On a month-over-month (MoM) basis PCE was 0.4%, slightly worse than the estimate for 0.3%. Meanwhile, core PCE came in as expected at 0.3%, but up from 0.1% in August. For the YoY comparison, headline PCE was 3.4% and core PCE was 3.7%, both in-line with estimates. Personal spending for September increased 0.7%, above the estimate of 0.5% and the previous of 0.4%. Personal Income increased 0.3%, less than the estimate and previous of 0.4%.

• Equity markets continued the prior week’s selloff as investors saw all major indexes post large losses for the week, driven by continued disappointing earnings results and concerns of a weaker economy going forward. The overall theme was resiliency in large cap tech and subscription-based models companies coupled with weakness on cyclical consumer, industrial and financial sectors which warned consumer appetite and demand is wanning. In earnings, large tech earnings from Alphabet (GOOGL), Meta (META), Microsoft (MSFT) and Amazon (AMZN) all posted strong earnings beats, although stock reactions were mixed. Alphabet and Meta had strong sell-offs, while Amazon and Microsoft shares reacted positively.
• Raytheon (RTX), Chipotle (CMG), Intel (INTC), Snap Inc (SNAP), 3M (MMM), IBM (IBM), Intel (INTC) and Chipotle (CMG) were among the best reported surprises. UPS (UPS), Edwards Lifesciences (EW), ADP (ADP), Ford (F), Comcast (CMCSA), Kenvue (KVUE), Mastercard (MA), Bristol-Meyers (BMY), Altria (MO) and HCA Healthcare were large disappointments.

The Week Ahead

• Another busy week ahead. The FOMC meets on Wednesday and is expected to hold rates steady at a range of 5.25%-5.50%. This meeting is not accompanied by an update to the dot plot, but markets will be listening to Chair Powell’s press conference regarding the possibility of one more hike. Also, the Treasury’s quarterly refunding announcement will be in on Wednesday. There is more interest than usual in the announcement in light of the shift higher in the long-end of the curve.

• Earnings this week include Apple (APPL), AMD (AMD), CVS (CVS), Kraft Heinz (KHC), McDonalds (MCD), Yum Brands (YUM), Mondelez (MDLZ), Monster Beverages (MNST), Starbucks (SBUX), Pfizer (PFE), Humana (HUM), Moderna (MRNA), Zoetis (ZTS), Eli Lilly (LLY), DoorDash (DASH), Block Inc (SQ), Coinbase (COIN), Booking (BKNG) and Peleton (PTON).
• Later in the week, we get the October employment report. The change in nonfarm payrolls is estimated at 190K, which would be a cooling off from the 336K pace in September, for which we may also get revisions. Still the overall employment picture is expected to remain healthy with unemployment rate estimated to stay steady at 3.8%, and average hourly earnings to be up 4.0% YoY.

Market Summary – Returns and Yields

Definitions, sources, and disclaimers

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 – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.  

Important Disclosures:

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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