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Market Recap – December 26, 2023

Keel Point

December 26, 2023

The Fed’s preferred measure of inflation declined 0.1% in November for the first time since April 2020, and core PCE inflation fell to an annualized rate of 1.9% over the past six months.  Financial markets reacted positively with the S&P 500 up for the week and up 24% so far this year.

  • Although core PCE inflation is up 3.2% over the past year, its November increase of only 0.06% and 6-month annualized rate of 1.9% means that the Fed’s 2% inflation target is well within sight. Declining energy prices contributed to the headline PCE price index (excluding food & energy) falling in November.
  • The U.S. is the largest producer of oil and natural gas since 2018, and in 2023 is producing 12.93 million barrels of oil per day, which is up from 2022 and from its pre-covid 2019 peak of 12.25 million BPD. Along with the continuing growth of non-fossil fuels production in the U.S., the 1 million BPD oil production growth in 2023 has mitigated Saudi and Russian efforts to reduce production and raise prices.  
  • Federal Reserve officials have said no rate cuts until late in 2024, but it will be hard for them to delay as core PCE inflation settles back to 2% and creates 3+% real rates of interest that could push a slowing economy into a recession the Fed is seeking to avoid.

Driven by rising stock prices, falling mortgage rates, lower gas prices and low unemployment; consumer confidence (Conference Board) is up 10% in December and consumer sentiment (U of Michigan) is up 14% with consumer 12-month out inflation expectations falling from 4.5% to 3.1%.

  • So, not surprisingly, consumers are spending, with real consumption rising by a slightly stronger 0.3% in November, suggesting that consumption growth is on course to grow at a 2.3% annualized rate in the fourth quarter, down from 3.1% annualized in the third quarter.
  • Corporate CFO optimism about the economy is also up 14% in Q4 2023 over Q2 2022, which was its lowest level since 2011.
  • Single family housing starts just hit an 18-month high while mortgage applications for new homes rose 21% y/y last month.

 

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC, an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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