The Weekly Wrap-Up - December 23rd, 2023

Inflation continues to drop while markets continue to rise

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CMG Venture & Mark Roussin
December 23, 2023

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Market Talk

The major indexes rose again last week as inflation levels continue to get closer to the Fed’s 2% target.

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5 Stories Moving the Market

These are some of the biggest stories from the past week that had an influence on market action.

The PCE Index, the Fed’s preferred inflation gauge, continued to decelerate in November

U.S. prices fell in November for the first in more than 3-1/2 years, pushing the annual increase in inflation further below 3%, and closer to the Fed’s target of 2%. The personal consumption expenditures (PCE) price index fell 0.1% last month, the first monthly decline in the PCE price index since April 2020. In the 12 months through November, the PCE price index increased 2.6% after rising 2.9% in October. October marked the first time since March 2021 that the annual PCE price index was below 3%.

The report boosted expectations of an interest rate cut from the Federal Reserve next March, with the market pricing in a 74% chance that the Fed cuts rates 25 basis points.

S&P 500 Targets

As we get ready to start a new year, that means it is time for economists and analysts alike to dust off their magic 8 balls and give us their 2024 price targets for the S&P 500.

As of Friday December 22nd, the S&P 500 closed at a price of $4,754.63. As such, let’s see how optimistic analysts are for 2024 based on where they believe the S&P 500 will end the year in 2024.

  • Fundstrat: $5,200

  • Goldman Sachs: $5,100

  • Deutsche Bank: $5,100

  • Bank of America: $5,000

  • RBC: $5,000

  • Barclays: $4,800

  • Wells Fargo: $4,800

  • UBS: $4,700

  • Morgan Stanley: $4,500

  • JPMorgan: $4,200

On average, the price targets are well below the S&P 500’s average annual return of roughly 10%, telling investors that many remain cautious heading into the new year.

2024 GDP Estimates

As we just saw with the S&P 500 targets not being overly bullish, if anything cautious, it should come as no surprise that GDP estimates in the US are expected to slow as well. In recent months, although we have seen cooling in terms of inflation, we have also seen some slowing in the economy and a pickup in unemployment, which is still low.

In addition, we have seen many large businesses with great insights into the US consumer report cautious guidance heading into 2024.

As such, here are some GDP estimates for 2024:

  • The Congressional Budget Office projects U.S. economic growth to slow to 1.5% in 2024, with the unemployment rate seen rising to 4.4% next year.

  • The OECD projects global GDP growth of 2.7% in 2024, with the United States seeing GDP growth of 1.5%.

  • The Conference Board expects US GDP to grow by 0.9% in 2024, largely due to continued impacts from inflation, high interest rates, rising consumer debt, dissipating of pandemic savings, and the resumption of mandatory student loan repayments.

30-year mortgage rate drops to 6.83%, its lowest since June

The interest rate on the most common type of U.S. home mortgage dropped last week to 6.83%, its lowest since June, as the Federal Reserve signaled it is done raising borrowing costs and will look to begin cutting them next year. The average contract rate on a 30-year fixed-rate mortgage has not been below 7% since July 28, and as recently as late October had risen to nearly 8%, a two-decade high.

Despite the continued drop in rates, mortgage demand fell last week. Applications for a mortgage to purchase a home declined 1% for the week and were 18% lower than the same period last year, while applications to refinance a home loan dropped 2% for the week.

Red Sea attacks disrupt world trade, more ships vow to avoid waters

Many of the world’s largest shipping companies said they would avoid the Red Sea, after attacks by Yemen's Houthi group on vessels disrupted global trade, prompting the establishment of a naval task force. The hostilities have put a chokehold on ship passages through the Suez Canal, which handles about 12% of worldwide trade.

The Suez Canal is most vital to the movement of goods between Asia and Europe, but global logistics executives warned that sending ships on alternate routes could roil global supply chains, causing backups at ports and shortages of vessels, containers and equipment that are suddenly in the wrong place.

Hundreds of large vessels are rerouting around the southern tip of Africa, a longer route adding 10-14 days of travel, have already pushed oil prices and freight rates higher.

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The Week Ahead

Let’s be honest, most people will be enjoying the holiday break next week, even if they are supposed to be “working”. The same goes for the market.

With the holiday shortened week, there are no earnings scheduled and only a select number of economic reports on the calendar.

Earnings Reports

No earnings reports scheduled.

Economic Reports

Outside of two housing reports next week, there is not much going on in terms of economic reports.

Poll of the Week 📊

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Mark Roussin, CPA (Dividend Seeker)

Chris Guillou (CMG Venture)

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Until next time investors!

Mark & Chris

The Investor’s Edge

Disclosure

This is not investing advice. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.

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