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Equities & Bonds Conclude Strong November as Inflation Moderates
Equity markets concluded their strong November with an additional positive week fueled by a cooling inflation reading. Global equities (represented by the MSCI All Country World Index) were up 0.81%, and domestic stocks (represented by the S&P 500 Index) were up 0.83%.
Personal Consumption Expenditures (PCE) Price index
The core (excluding food and energy) Personal Consumption Expenditures (PCE) price index, the US Federal Reserve’s preferred inflation gauge, was released Thursday showing a slowdown on both a monthly and year-over-year basis. For October, the core PCE price index rose 0.2% from the month prior, slowing September’s 0.3% reading. Core PCE rose at an annual rate of 3.5% for October compared to the previous reading of 3.7% marking the lowest level since April 2021. While still above the Fed’s 2% target, inflation has continued to follow a trend lower from its peak in 2022.
Q3 GDP Growth
Adding to positive economic news, the US government released an adjustment to their initial estimate of Q3 GDP growth which showed a stronger quarter than initially reported. The adjusted figure showed GDP growing at an annual rate of 5.2% compared to the initial estimate of 4.9%.
Strong November returns were not just isolated to equity markets as the Bloomberg US Aggregate Bond index rose 4.5% for the month. The strong month for bonds was coupled with a pullback in yields. The 10-year US Treasury rate came into November around 4.8% but concluded the month around 4.4%.
US Personal Spending
Restrictive policy and elevated rates remain a concern to economic growth. US Personal Spending for October showed a month-over-month increase of 0.2%, a large drop from September’s 0.7% rate and the slowest pace since May. While weekly initial claims for unemployment stay near historically low levels, continuing claims have increased to 1.93 million, which is the highest level in nearly two years.
This week a labor market report for November is slated for Friday. Job growth has slowed in recent months as the economy only generated 150,000 jobs in October compared to an average of 258,000 over the past 12 months. The US unemployment rate has stayed relatively low but ticked up to 3.9% in October.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.