Weekly Market Update for November 3, 2023

by Jim Ulland

The Jobs Report this morning finally reflected a slowing pace of job growth and an increase in the unemployment rate. This isn’t meant to be unsympathetic to those getting laid off, but somewhat higher unemployment is what the Fed is seeking since this will dampen the impact of wage increases on the rate of inflation. The market viewed this news very favorably. For example, the yield on the 10-year Treasury, which is used as an indicator for the direction of interest rates, was 4.88% at the close on Monday 10/30. At today’s close the 10-year rate is 4.57%. Wage growth was up only 0.2% from September to October. Unemployment rose from 3.8% in September to 3.9% in October.

The Fed’s rapid interest rate increases have been a headwind for preferred stock prices and for most common stocks over the last 20 months. Now that we appear to have reached “peak rates,” the Fed is expected to pause. The Fed has not raised interest rates during its last two meetings, one of which was this week. In six months or so, the Fed is likely to start lowering rates. What had been a headwind for the markets should turn into a tailwind. What we like about our Intelligent Fixed Income (IFI) strategy is that even while preferred prices have been pressured, the income from the securities in these portfolios was unchanged and substantial. The current yield in this strategy is now about 8%. The yield on our US Treasury strategy is just below 5.4%. Remember, investors do not have to pay state taxes on income from Treasuries.

This week, the market’s worries have been less. The war between Israel and Hamas has not spread although that danger is still present. Crude oil prices retreated more than $5/bl since last Friday. The UAW and the auto firms have agreed on a contract. Eurozone inflation came in below 3% for the first time in more than two years. US Q3 productivity was up, another factor helping to contain inflation since it drives unit labor costs lower. Thirty-year fixed mortgage rates joined the party and fell below 8%.

Generally good corporate earnings continued, and the market was more appreciative. In fact, the S&P 500 and the Nasdaq were up every day this week. The S&P 500 ended up +5.85% and the Nasdaq +6.61%. On Monday the S&P 500 was +1.20%, Tuesday +0.65%, Wednesday +1.05%, Thursday +1.89%, and Friday +0.94%. The yield on the 6-month Treasury closed at 5.48%. The 10-year Treasury finished down -27bps to 4.57%.

Next week, there will be fewer significant economic reports. Geopolitical events could dominate the headlines. The next big economic news is 11/14 when the October CPI is released. The CPI is one of the commonly used inflation indicators. (As a side note, many of our clients and readers forward this Market Report to others. You are welcome to do so. Also, we are happy to add people you suggest to the distribution. Just provide us with the email).

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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