Market Note – December 12, 2023

By Hightower Great Lakes on December 12, 2023

Jobs Report Highlights a Supportive Labor Market, Downward Inflation Trends

Inflation continues to show improvement. Last week, average hourly earnings for employees reported in line with expectations, growing +4% y/y in November. This is down from peak 5.7% in January 2022.

Chart 1: All Key Measures for Inflation Trending Downward[1]

While employee wage growth is muted, we are not experiencing any significant layoffs or jobless claims – a dynamic that reflects the challenges that companies experienced re-hiring workers in 2021.

In fact, new nonfarm payrolls grew 199,000 jobs in November, higher than expectations, and emphasizing that the job market continues to be strong.

The unemployment rate also declined to 3.7% in November, down from 3.9% in October. A strong labor market impacts consumer sentiment, which also came in better-than-expected in November.

Chart 2: Labor Market Finding Stability, Moderation[2]

The economy continues to grow – Q4 GDP expectation is 1.2% and November ISM Services was 52.7 (anything above 50 represents expansion). China’s economic PMI also indicated expansion and strong leading indicators.

We think the Fed’s target interest rate is at its peak and the combination of falling inflation with strong economic activity can upstart a new economic cycle. We are positioned for market expansion, focused on companies with high quality fundamentals, attractive valuations and the ability to beat expectations with strong thematic catalysts and experienced management.

Chart 3: Stable Services Expansion with Peak Rates[3]

Inflationary costs are coming down and the economy continues to expand – these factors are positive for both corporate earnings and consumer spending. Markets tend to follow earnings and we are investing in high-quality companies with under-appreciated earnings growth opportunities.

We maintain conviction that the Fed will maintain a “higher for longer” policy, so long as inflation continues to trend towards target and economic activity remains strong. Unless the situation changes for the labor market, the Fed is unlikely to materially cut interest rates.

Bonds Fall, Yields Rise after Strong Jobs Reports

U.S. treasuries ended the week with steep front-end losses in reaction to a strong November jobs report. The U.S. 2-year yields sold off by 14 bps, and the 10-year yields ended the week flat at 4.23%. High yield spreads narrowed 15 bps to 410 bps over treasuries in the past week. Munis outperformed on the week, with yields lower by 6-11 bps across the curve.

The Week Ahead

Earnings – Wednesday: ADBE; Thursday: COST; Friday: DRI, LEN.

Economics – Tuesday: CPI (November); Wednesday: PPI (November); Thursday: Retail Sales (November); Friday: Industrial and Manufacturing Production (November).

Return for Selected Indices^[4]

		% Change
Index Name	End of Week	Week	Month	YTD
S&P 500 INDEX	4,604	0.24%	5.28%	21.79%
NASDAQ COMPOSITE	14,404	0.70%	5.66%	38.74%
DOW JONES INDUS. AVG	36,248	0.04%	6.71%	11.72%
RUSSELL 1000 INDEX	2,526	0.25%	5.65%	21.76%
RUSSELL 2000 INDEX	1,881	1.00%	9.91%	8.30%
FTSE 100 INDEX	7,554	0.34%	2.55%	5.09%
HANG SENG INDEX	16,334	-2.93%	-6.83%	-14.31%
NIKKEI 225	32,308	-3.36%	0.44%	26.24%

				% Change
Index Name	YTW	Spread	Duration	Week	Month	YTD
U.S. TREASURY	4.47%		6.21	0.11%	2.07%	1.53%
U.S. AGGREGATE	4.95%	+48 bps	6.31	0.15%	2.83%	2.66%
U.S. CORPORATE INV. GRADE	5.51%	+103 bps	7.22	0.25%	4.01%	5.17%
U.S. CORPORATE HIGH YIELD	8.29%	+382 bps	3.86	0.37%	2.84%	10.13%
U.S. MUNICIPAL BOND INDEX	3.46%		5.93	0.56%	4.28%	4.73%

Click here to read last week’s Market Note (12/4).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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[1] Source: FactSet (chart). As of December 11, 2023.

[2] Source: FactSet (chart). As of December 11, 2023.

[3] Source: FactSet (chart). As of December 11, 2023.

[4] Source: Bloomberg. As of December 10, 2023.