Market Perspective for October 22, 2023

Some interesting news came out over the past week, perhaps most surprising were core retail sales and overall retail sales data from the month of September. It showed that core retail sales increased .6 percent, while overall retail sales were up .7 percent over the past month.

This was significantly higher than the expected increases of .2 percent and .3 percent respectively. Furthermore, retail sales data from the month of August was revised upward to show that core retail sales increased .9 percent while overall retail sales increased .8 percent during that month. An increase in wages was cited as the reason why these figures were so strong, and it has caused some to speculate that the Federal Reserve may not be done with their current hiking cycle.

On Thursday, unemployment claims data was released and showed that there were 198,000 requests for unemployment benefits during this time period. This was down from 211,000 requests from a week ago, which is another sign that the economy is doing well despite being in a period of restrictive monetary policy.

Thursday also featured remarks from Federal Reserve Chairman Jerome Powell. He said that it was possible that interest rates had less of an effect on the economy than imagined. He also said that the full impact of rate hikes may not have been felt yet as it takes time for the impact of restrictive policies to take effect. Therefore, Powell said that there was a need to be patient and cautious as it relates to future rate decisions.

Powell also said that it may take a period of economic weakness to bring inflation down from 3.7 percent to the Fed’s target of 2 percent. However, he did mention that the situation was much better than it was a year ago when inflation was at 9.1 percent.

Although it was sort of lost in the shuffle given the other news, Monday saw the release of the Empire State Manufacturing Index. It came in at -4.6 percent, which was higher than the expected -6.4 percent but still lower than the 1.9 percent reading from last month.

The Dow lost 2.3 percent this week to finish at 33,127 at the close of Friday’s trading. On Tuesday, the market made its high of the week at 34,142 and would continue to lose ground until Friday when it closed at its weekly low.

The Nasdaq had an even steeper decline this week as it dropped 3.59 percent over the past five trading days. On Tuesday, the market hit its high of 13,601 before reversing and steadily declining for the rest of the week. Friday was the worst day of the week for the market as it accounted for almost half of the index’s losses over the past several days.

The S&P 500 would also suffer through a poor week losing 2.93 percent to finish at 4,224. As with the other major indices, it would make a high on Tuesday before losing ground the rest of the week. The weekly high was 4,392 while the market would end trading on Friday at its weekly low.

Next week will be an extremely busy. On Tuesday, Flash Manufacturing and Flash Services PMI reports will be released while gross domestic product (GDP) figures for the second quarter will be made public on Thursday. Jerome Powell is also expected to speak late Thursday afternoon. The Core PCE Price Index for the month of September is scheduled for release on Friday. The University of Michigan is also set to release its revised consumer sentiment and inflation expectation reports on Friday morning.

Internationally, interest rate decisions will be made in Canada and the European Union while Australia is set to release its most recent inflation figures. The results of these decisions and inflation reports will likely play some role in what the Fed decides to do during its November meeting.

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