We see Wall Street most flat with little volatility and are trying to maintain the positive momentum of last week's strong rally. All major US indices had their best weeks of the year and started November on a positive note. The Dow ended last week up 5.1%, its biggest weekly gain since October 2022, while the S&P was up 5.9% / the Nasdaq up 6.6% – the best week for both indices since November 2022. The main reason for last week's strong gains is increasing hopes that central banks have ended their tightening measures and interest rates have peaked – in particular, weak labor market data has reinforced expectations that the Fed (and ECB) is done.
I generally agree with this view as we are now seeing weaker economic data and an easing labor market – and disinflation is also continuing, especially in the Eurozone. The fact that we are in November, historically the strongest month for the S&P 500 and the start of the strongest six-month period for the S&P 500 since 1950, also argues for gains.
However, I think further year-end gains are increasingly limited and conditions are somewhat overbought after last week's very strong gains. Much will depend on yields, which also fell sharply last week. But it was precisely this slide in yields that was halted today: yields on US Treasuries rose sharply again, recovering from the previous week's sharp fall.
We see a relatively unspectacular week – without very important earnings reports and without massively important economic data. We will hear some statements from Fed officials, but overall it is a rather quiet week, which could be enough to keep stocks in positive territory for now.
Earnings season is coming to an end as more than 400 S&P companies have already released their quarterly results. The earnings season started mixed but improved (US companies), while it was less positive in Europe.
I see market sentiment as positive enough to see further gains, but view current gains as a bear market rally. Companies have been much more cautious in their earnings guidance and we saw signs of weakness in China (sales). In addition, macro data continues to deteriorate and analysts are increasingly pessimistic as markets and investment alternatives are still expensive. I also think investors are too optimistic about rate cuts – it is more likely that the Fed will hold rates “higher-for-longer”.
We are seeing some weakness in the financial sector today – not usually a good sign for the overall stock market. We are also seeing weaker small-cap stocks than large-cap stocks – showing that last week's broad gains have now turned into mixed markets.
The USD has also stabilized after sliding lower over the last three trading days. Gold is slightly weaker as yields have risen. In view of the ongoing tensions in the Middle East and the extended production cuts, I also consider the oil price to be undervalued. However, the very warm autumn is keeping gas/heating oil inventories full and weighing on oil and gas prices.
Investors are looking for further clues – the persistently weak economic data from China and Europe will weigh on sentiment – causing likely an underperformance of European stocks.
👁 ROB'S MARKET OVERVIEW:
November 6, 2023
🇺🇸 US Markets ➡️
Cyclical Stocks ➡️
Tech/Growth Stocks ➡️
Financial Stocks ➡️/↘️
Defensive Stocks ➡️/↗️
Energy Stocks ➡️
Materials Stocks ➡️
💱 Forex
EUR ➡️/↗️ (still benefiting from last week's weakness in USD & JPY, upside limited)
CHF, GBP, CAD ➡️
USD ➡️ (stabilizing after recent losses – has recovery potential)
JPY ➡️/↘️ (little signs that the Bank of Japan feels pressure to end accommodative monetary policy)
AUD ➡️/↘️ (overbought after strong gains in previous week)
⚒ Commodity Markets ↕️/↗️
Oil prices ↗️/➡️
Natural Gas prices ↘️ (full natural gas stockpiles)
Metal prices ➡️/↗️
Gold ➡️/↘️ (headwinds from higher yields)
⚡️Cryptos ➡️/↗️ (remain slightly positive after recent gains & hopes of Fed rate cuts in 2024)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
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