Market Perspective for October 29, 2023

The final full week in October featured several important news announcements that will likely influence what the Federal Reserve does in its November meeting. The first news reports of the week were released on Tuesday morning and were the PMI Flash Manufacturing index that came in at 50 percent and the PMI Flash Services index that came in at 50.9 percent.

The other major report was the advance gross domestic product (GDP) for the second quarter. It revealed that the economy had grown at a rate of 4.9 percent over the previous three months, which was well above analyst estimates of 4.5 percent. However, it was worth noting that the GDP figures for the first quarter were revised down to 2.1 percent from 2.4 percent. Therefore, it’s possible that the most recent report may be too optimistic about what happened recently.

Unemployment claims data also came out on Thursday and revealed that there were 210,000 requests for unemployment benefits in the past week. This was 10,000 more than the previous report and slightly higher than the 208,000 claims analysts thought were filed during the last seven days.

The final major report on Thursday revealed figures for durable goods and core durable goods. Durable goods orders were up 4.7 percent over the previous month while core durable goods orders were up .5 percent over the previous month. Durable goods orders had been expected to rise just 1.9 percent while core durable goods orders were expected to rise just .2 percent.

On Friday, the Core PCE Price Index was released and showed an increase of .3 percent in consumer prices over the past month. It was also revealed that personal income was down .3 percent over the previous month, which could be an ominous sign going forward. Finally on Friday, the University of Michigan released its revised consumer sentiment readings. In October, the final confidence reading came in at 63.8 percent, which was slightly lower than the 63.8 figure released earlier in the month.

In addition, revised inflation expectation data was also made public, and it showed that respondents now expect the inflation rate to hit 4.2 percent in the next 12 months. The original consensus was that inflation would be at 3.8 percent in 12 months.

Despite the strong economic numbers presented over the past few trading days, it’s unclear whether this will lead to higher rates. Treasury Secretary Janet Yellen says that the economy looks like it will have the soft landing that everyone was hoping for at the beginning of the rate cycle.

She also said that growth should ease back to 2.5 percent rather soon and that a strong economy simply means that rates will remain where they are for a longer period. Other members of the Federal Open Market Committee (FOMC) echoed similar sentiments that the Fed was near its peak rate and that rates would remain elevated for a long period of time.

The Dow 30 would incur another week of losses as it gave up 789 points to finish the week at 32,417. Like last week, the market would make its high on Monday before giving up ground all the way to the close on Friday.

The Nasdaq would also incur a significant loss this week as it closed down nearly 3 percent compared to its opening price on Monday. It would make a high of 13,146 on Tuesday and a low of 12,591 on Thursday before reversing and finishing at 12,643 on Friday afternoon.

The S&P 500 also lost about 3 percent this week to finish at 4,117. Like the other two major indexes, it started the week by making a high and would lose ground the next four trading days. The weekly high was 4,253 set on Monday afternoon while the weekly low was 4,104 set just about an hour before the close of business on Friday.

This upcoming trading week is set to be a significant one for traders as it features two of the most important reports in the same week. On Wednesday, the Fed will release its rate decision for November while nonfarm payroll data will be released on Friday. Rate decisions will also be forthcoming from the Bank of Japan, which is set to take a more hawkish tone on monetary policy. A rate hike from the BOJ may cause increased volatility for the dollar as low rates have made the yen a popular carry trade currency.

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