Weekly Market Brief: November 6, 2023

Week in Review

The S&P 500 index had its best week of the year, rising 5.8% and bringing its year-to-date gain to more than 13%. The Dow Jones Industrial Average climbed out of negative territory for the year, and NASDAQ Composite jumped 6.6%, erasing the last two weeks of declines. The Russell 2000, which has lagged all year, led major indexes with a 7.5% rally. Needless to say, it was a good week for stocks. Bond investors didn't do so bad themselves, as interest rates fell, driving 10-Year Treasury futures to their best week since March. Weakness in the US Dollar did little to help commodity prices, as gold fell modestly and crude oil dropped nearly 6%.

“No More Hikes”

That seems to the consensus takeaway from last week's FOMC decision. Jerome Powell & Co. decided to keep interest rates unchanged, an outcome that was expected by most Fed watchers. Powell's comments at the post-meeting press conference, though, were decidedly more dovish than previous meetings, as he acknowledged the impact that recent increases in long-term interest rates were having on financial conditions.

Rate hikes may be a thing of the past, but monetary policy is still in restrictive territory. And despite 4.9% GDP growth in the third quarter, the effects of that restrictive policy are starting to take hold. Last week, the Institute for Supply Management's Manufacturing PMI survey dropped to 2.3 points to 46.7, well below the 50.0 level that signals business expansion. And even though the US added 150,000 jobs in October, the unemployment rate ticked up to 3.9%. Unless unemployment drops over the next two months, it'll trigger the so-called Sahm Rule, which has accurately preceded recessions in the past.

Market Internals

Breadth was a concern for most market watchers throughout March, April, and May, as the rally in growth stocks obscured lackluster performances from value-oriented names during the spring. In June and July, trends began to broaden, but the dog days of summer took their toll. After index-level declines in August, September, and October, breadth was as weak as it had been all year. Last week's surge, though, served to improve near-term trends. Three-quarters of stocks are above their 20-day moving average.

Long-term trends remain healthiest in the Information Technology, Communication Services, and Energy sectors, where more than half of constituents are still above their long-term moving averages. Traditionally considered risk-off areas, the Utilities and Consumer Staples sectors are the most weakly positioned. Fewer than 20% of stocks in those groups are in long-term technical uptrends.

What's Ahead

Here's what to watch in the week ahead: