Hold back on US stocks until Thursday, 30 Nov 2023?
Just as I have guessed in my Monday post (click here! to read, help to repost) - US market consolidated.
The downwards trading session comes after all the composite indexes have booked their 4th straight weekly win on Black Friday, 24 Nov 2023 and remained on track to book “November” as the best month in over a year, with Wall Street fanning to keep the rally flames “alive”.
US stock market performances on 27 Nov 2023 (Mon).
By the time market closed:
DJIA: -0.16% (-56.68 to 35,333.47).
S&P 500: -0.20% (-8.91 to 4,550.43). Worst performer.
Nasdaq: -0.07% (-9.83 to 14,241.02). Traded positive for most of the day, slipped in late trading.
Official Reports season.
Yesterday saw the first of many official reports that will be released progressively throughout this week.
It will culminate with the Core Personal Consumption Expenditure (PCE) October report on Thu, 30 Nov 2023.
The determinant PCE report:
Will set the direction for US stock market from Thu, 30 Nov 2023 onwards.
“Convince” the Fed members about the state of the US economy, as they prepare to socialize with the media for the last time in 2023, before FOMC’s blackout period starting from 02 Dec to 14 Dec.
Firing the first salvo was US New Home Sales for October 2023.
New home sales in the US, fell in October 2023 as mortgage rates reached their highest levels this year. (see below)
October 2023 new sales dropped to 679,000 from 719,000 in September23.
Median sales price of new houses also fell to $409,300 from $418,80043.
Actual sales is also lower (-5.83%) than market forecast of 721,000.
Indirectly, this reflects consumers’ mindset over US economy and its facing challenges and uncertainties, as we head into end 2023.
With both 15 years and 30 years mortgage rates still at an “elevated” high, acting as a deterrent; especially when it comes to big ticket item like a house, that could run into the hundreds of thousands of dollars.
Reports To Watch This Week:
Enclosed please find the more pertinent official reports that would be released between Tue, 28 Nov to Fri, 01 Dec. (see above)
Tuesday - 28/11/2023
Consumer Confidence report measures how optimistic or pessimistic consumers are about the current and future state of the economy.
A high level of consumer confidence can boost consumer spending and stimulate economic growth, that can benefit the stock market.
A low level of consumer confidence can indicate a slowdown in the economy and lower consumer spending, that can hurt the stock market.
We can leverage on this report by monitoring the changes in consumer confidence and adjusting our portfolio accordingly.
For example, if consumer confidence is high, we can invest in sectors that benefit from increased consumer spending, such as retail (eg. $Nike(NKE)$) , entertainment (eg. Netflix), or travel (American Airlines).
When consumer confidence is low, we can invest in sectors that are more resilient to economic downturns, such as utilities ( $American Water(AWK)$) , health care, or consumer staples.
Case-Shiller Home Price index — is a leading indicator of the health of the housing market, that is closely linked to the overall economy.
A rising home price index can indicate a strong demand for housing and a robust economy, which can support the stock market.
A falling home price index can indicate a weak demand for housing and a sluggish economy, which can weigh on the stock market.
We can leverage on this report by monitoring the trends in home prices and investing in sectors that are related to the housing market, such as construction, real estate ($REIT, or home improvement ( $Home Depot(HD)$ .
Wednesday - 29/11/2023.
US Gross Domestic Product Q3 2023 third estimates.
Estimate reports are revised versions of the advance estimate, released earlier. They are based on more complete source data than the advance estimate.
They provide a more accurate picture of the economic activity to each of the quarter.
Purposes of these reports are to update (a) GDP growth rate, (b) GDP components, (c) GDP by industry, and (d) corporate profits for a quarter.
They also provide information on (a) sources of income and spending, (b) contributions of different sectors to GDP, and (c) changes in prices and inflation.
A high GDP growth rate can signal a strong and expanding economy, that can boost the stock market.
A low GDP growth rate can signal a weak and contracting economy, that can drag down the stock market.
We can leverage on this report by comparing the actual GDP growth rate with the expected and previous ones and investing in sectors that are likely to benefit from the economic conditions.
For example, when GDP growth is high, we can invest in sectors that are sensitive to economic cycles, such as technology ( $Microsoft(MSFT)$) , industrials, or materials.
When GDP growth is low, we can invest in sectors that are less sensitive to economic cycles, such as utilities, health care (UnitedHealth (UNH)) , or consumer staples.
Thursday - 30/11/2023. Last day of November 2023.
Personal Consumption Expenditure (PCE) is a measure of consumer spending on goods and services among households in the US.
It is also used as a mechanism to gauge how much earned income of households is being spent on current consumption for various goods and services.
US - PCE September 2023
Bloomberg - October PCE Forecast
US core PCE YoY for September 2023 was 3.7%.
Bloomberg core PCE YoY (Forecast) for October 2023 is 3.5%.
US core CPI (consumer price index) YoY for October 2023 was 4.0%, that is -0.1% lower than its September data.
Prediction: digesting (a) CPI October actuals and (b) Bloomberg’s forecast, it is likely that US October 2023 PCE data will be favourable.
A moderate level of inflation can indicate a healthy and growing economy, which can support the stock market.
A high level of inflation can indicate an overheated and unsustainable economy, which can hurt the stock market.
A low level of inflation can indicate a stagnant and deflationary economy, which can also hurt the stock market.
Leverage on the PCE report by monitoring the changes in inflation and invest in sectors that are likely to perform well under different inflation scenarios.
For example, when inflation is moderate, we can invest in sectors that have pricing power and can pass on higher costs to consumers, such as technology (Meta Platform, META), health care, or consumer discretionary.
When inflation is high, we can invest in sectors that are hedge against inflation and benefit from rising prices, such as commodities, energy (Exxon Mobil, XOM), or gold ( $B2Gold(BTG)$).
When inflation is low, we can invest in sectors that offer stable and predictable cash flows and dividends, such as utilities, telecoms, or consumer staples.
Friday - 01/12/2023.
ISM Manufacturing report indicates the level of demand for products by measuring the amount of ordering activity.
S&P Manufacturing PMI report is a leading indicator gauging business activity in the US manufacturing sector.
My Viewpoint:
This week’s official reports take centrestage compared to companies quarterly earnings.
Amongst all the reports to be released, both Wall Street and retail investors will be waiting keenly for the Personal Consumption Expenditure (PCE) report.
If my research is in-depth enough, it should be a favourable set of data.
When that happens, US market should take off for the last 2 days of the week.
Closing off November on a “high” and beginning December on a “winning note”.
Do you think US’s October 2023 PCE report will be stellar?
Do you think US market will end November 2023 on a high?
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