Just back from Philadelphia. It was an eventful week. Ran up the Rocky stairs, ate (a few) cheesesteaks, toured Lincoln Financial Field and of course saw the Liberty Bell. That tourist stuff was weekend time as the work week was spent attending Charles Schwab’s IMPACT 2023. It was Schwab’s 33rd IMPACT investment advisor conference. Charles Schwab’s leadership gathered about 6,000 investment advisors to highlight the recent completion of the Schwab and TDAmeritrade merger and kickoff the shared vision of the combined companies future: “STRONGER TOGETHER”.
Walking away frow last year’s IMPACT, before the integration of the two custodians, I had the expectation that the future of Schwab would look like the past of TDAmeritrade. This year, I walked away from IMPACT seeing how the two are stronger together.
Over the recent Labor Day weekend, Schwab and TDAmeritrade completed the brokerage industry’s biggest account migration ever. Over 12 million client accounts exceeding $1.3 trillion in assets from over 7,000 advisor firms moved. Massive!
Schwab has laid out a clear path to a better and stronger future with the integration of TDAmeritrade while reinforcing its mission to help investors reach their goals with passion and integrity. The highlights of IMPACT 2023 to me were:
Trading and Wealth Management Tools:
Schwab’s wealth management and trading technology tools are considered the best of class. Schwab’s adoption of TDA’s proprietary platforms, Thinkpipes and iRebal, are the industry’s gold standard.
Investment Solutions:
From third-party products to global access to marketable investment instruments, Schwab provides all the tools needed for customizable and efficient investment and wealth management.
Retirement Plan Services:
Retirement Plan Solutions at Schwab offers critical planning, administration, management, evaluation and educational services necessary for securing retirement savings accounts.
Schwab Charitable:
Schwab Charitable™ is an independent, 501(c)(3) public charity with a mission to increase charitable giving in the U.S. by providing a tax-smart and simple giving solution to donors and their investment advisors. A Schwab Charitable account can be a valuable wealth-planning tool that enables estates to give more strategically.
Schwab Banking and Lending Services:
Whether traditional saving and checking accounts or complex trust services, Schwab’s Banking and Lending Solutions helps clients banking needs.
At IMPACT 2023’s Final Night Event, Schwab’s Managing Director and Head of Advisor Services, Bernie Clark, said, “We couldn’t be more excited to celebrate this milestone with you all and move forward Stronger Together.”
TAKING PERSPECTIVE…
Proper Perspective: In our hectic and often hard to comprehend world, it is very easy to lose perspective. You may agree it is sometimes difficult to see the big picture. The media often doesn’t help with this, but unfortunately instead encourages us to see things in a most negative light. Here is hopefully a pause to gain positive perspective.
Famous Quote For Today: “Farm workers are not agricultural implements; they are not beasts of burden to be used and discarded.”
~~Cesar Chavez, 1994
What Happened On This Day, November 9, 1965 – Biggest power failure in US history: all New York state, 7 neighboring states & parts of Canada plunged into darkness.
MARKET ANALYSIS
INDICATORS OF INTEREST:
Market’s Current Signal: Market in Confirmed Uptrend. Analysis of the stock market over 130 years of history shows we can view it in terms of three stages – market in uptrend, uptrend under pressure and market correction. I analogize this to a traffic signal’s changing colors from green to yellow and then to red. Since the 1880’s, this perspective has led to investment out-performance relative to market indexes. This is due to trend analysis which determines risk reducing, return enhancing market entry and exit points.
The Stock Market Trend: Market in Confirmed Uptrend. Wednesday November 1 the market closed up in higher volume came on the fourth day of a rally attempt. This follow-through day triggered a positive market trend signal to Market in Confirmed Uptrend. This was a bulling direction change from Market in Correction. The market’s technicals and fundamentals are both solid and support the market’s Confirmed Uptrend.
Here are key market levels as of Monday, November 6:
Recapping Last Week
U.S. equities posted their best weekly performance of the year as investors cheered a substantial pullback in interest rates. The S&P500 and Nasdaq Composite Indexes jumped 5.5%+ and 6.5%+, respectively, while the Russell 2000 soared 7.5%. All 11 S&P500 sectors were higher, with real estate spiking 8.5% while consumer discretionary, financials, and communications all leapt 7%+. U.S. Treasury yields plummeted after employment data pointed to some long-awaited loosening in labor markets. U.S. payrolls increased by 150,000 in October, the smallest gain since January 2021, and the prior two months were revised lower by over 100K. More importantly, on the inflation front, average hourly earnings increases were muted, and Q3 unit labor costs unexpectedly declined as productivity increased. After the FOMC left interest rates unchanged for the second straight meeting, Chair Powell hinted in his press conference that the door remains open for future increases, but the market’s reaction signaled that this hiking cycle may be over. The dive in rates was also aided by U.S. Treasury’s announcement of only modest increases in auction sizes, easing fears that oversupply would keep upward pressure on rates. In other economic news, U.S. manufacturing contracted sharply in October, likely reflecting effects from the UAW strikes, while the services sector slowed for a second straight month but remained in expansion. Consumer confidence declined in October as inflation and borrowing costs continued to weigh. U.S. home prices are at record highs with affordability at historical lows.
Internationally, Japan’s central bank shifted language to allow more flexibility in its yield curve control, a move that may be a precursor to an exit from ultra-loose policy. Meanwhile, the Bank of England left interest rates unchanged in a 6-3 vote but said monetary policy will likely stay tight for an extended period. In Europe, German inflation cooled noticeably in October to 3.0% year-over-year, while the country’s economy shrank slightly in Q3. Similar numbers reflected across the euro zone. Finally, China’s manufacturing activity unexpectedly contracted in October as new orders shrank for the eighth straight month.
Current View
The stock market was barely able to extend its longest win streak in two years, as investors found few catalysts yesterday. Indexes could be at a turning point, though. The Nasdaq composite and S&P 500 reversed higher and closed with 0.1% gains. The Dow Jones Industrial Average, however, fell 0.1% and snapped its seven-day win streak. If the S&P manages a ninth straight gain Thursday, it will match the index’s longest winning streak since Nov. 5, 2004. For the Nasdaq, it was the ninth consecutive gain — its longest win streak since an 11-day run that ended two years ago to the day. The S&P 500’s eighth straight advance matched a win streak that also ended on this same day in 2021. The Nasdaq has rallied nearly 9% from its Oct. 26 low and the S&P is up nearly 7%. institutional investors remain buyers. Since the follow-through in the Nasdaq November 1 and in the S&P 500 the next day, the stock market has yet to suffer a single distribution day. The 10-year Treasury yield continued to ease, down 5 basis points to 4.52% late yesterday. The benchmark yield is now below its 50-day moving average. The easing trend has been a relief for the stock market. Meanwhile, earnings reports remain supportive of more bullish sentiment. Disney, for example led the positive reports late yesterday.
On a cautionary note, next week has the potential for trouble. Inflation data, retail sales and more earnings reports are on the calendar. And Congress faces a November 17 deadline on a government shutdown. A settlement could be fraught with uncertainty as it was in September. Congress at that time reached a temporary deal to keep the government running, but the agreement cost then-House Speaker Kevin McCarthy his job. The risk of a government shutdown is rising. There are deep disagreements over spending on border security versus continued aid to Ukraine. Additionally, it is unclear how negotiations will be affected by a new House Speaker and new geopolitical risks.
Industry Group Strength: BULLISH. As of yesterday, 103 out the 197 groups I monitor are up year-to-date. 94 are down.
New Highs vs. New Lows: BEARISH. In yesterday’s session, there were 79 new 52-week highs and 173 new 52-week lows.
Dow Dividend Yield: BEARISH. The current yield for the Dow Jones Industrial Average is 2.27%. The 10-year Treasury now 4.57%.
Volatility Index: BEARISH. Volatility has been volatile. The “VIX” is now 15. The index is also known as the “Fear Index.” It is considered a contrarian indicator and therefore viewed as bullish as it rises indicating investors are becoming more fearful. The VIX:
Fear / Greed Index: Neutral. Investors are driven by two emotions: fear and greed. Too much fear can create a condition of oversold/ undervalued stock prices. Too much greed can result in overbought/overvalued stock prices. The AAII Investor Sentiment Index is now neutral. BE FEARFUL WHEN OTHERS ARE GREEDY. At 45, the Fear & Greed Index is up from 29 two weeks ago.
CLICK VIDEO FOR MORE ON THE “FEAR & GREED INDEX”
How CNNMoney’s Fear & Greed Index works
Bull / Bear Barometer: NEUTRAL. This secondary market indicator should also be viewed with a contrarian perspective. As of yesterday, according to the latest survey of stock market newsletter writers by Investor’s Intelligence (see below), bullish sentiment is 49.3% and the bears came in at 23.9%. Consider this a contrarian indicator because the crowd is often wrong at market tops and bottoms. In other words, extreme bullishness has been seen near several market tops in the past, while extreme bearishness has been seen at market bottoms.
Put / Call Ratio: BEARISH. The ratio of put-to-call options is 0.59. The put-call ratio tracks the mood of what options investors are doing, not just saying. They typically buy puts if they think a stock will decline and calls if they think it will rise. If they’re buying lots of puts, they see the market declining. And if they’re loading up on calls, they’re generally bullish. Historically, market bottoms occurred when the reading spikes to 1.2 or more. Market tops are often made when the reading is 0.6 or less. Note how reliable this is with respect to the February record low coinciding with the market high. Keep in mind this is also a contrarian indicator.
ECONOMIC UPDATES
Global Economic Indicators & Analysis:
POSITIVE INDICATORS
Jobless Claims Dip, Labor Market Sturdy: The number of Americans who applied for unemployment benefits last week fell slightly to 217,000 and stayed at very low levels typical of a strong U.S. jobs market. New jobless claims declined by 3,000 from a revised 220,000 in the prior week, the government said. Claims still show a very low number of job losses and indicate the economy is stable, but businesses are hiring less and the labor market appears to have cooled off a bit. One complication is the UAW auto strike. It may have inflated claims lately. Unemployment claims typically surge above 300,000 and eventually go a lot higher when a recession is near. A rock-solid labor market is showing some chinks, but the unemployment rate is still extremely low and few companies are laying off workers. The strong jobs market is the economy’s biggest insurance policy against a recession.
Consumer Spending Spikes: Consumer spending rose a a sharp 0.7% in September, underscoring the recent strength in the U.S. economy. Consumer spending is the main engine of the U.S. economy. Outlays grew a robust 4% in the third quarter, marking the biggest increase since 2019 excluding the pandemic years. The economy picked up speed in the third quarter thanks to the big burst of consumer spending, but it can’t be sustained. Households are likely to scale back in the final three months of the year. There’s no reason to expect a big drop-off in spending, however, given an extremely low unemployment rate. Most people who want a job have one, and that’s likely to support a steady increase in spending.
Consumer Sentiment Improves Slightly: Consumer sentiment improved slightly at the end of October, but higher gas prices left people more worried about inflation.
The consumer-sentiment survey reveals how consumers feel about their own finances as well as the broader economy. The final reading of the sentiment survey edged up to 63.8 from 63.0 earlier in the month, the University of Michigan said last Friday. Americans think inflation will average 4.2% in the next year, compared with 3.8% earlier in the month and 3.2% in September. Renewed worries about inflation largely reflect higher gas prices. The soft consumer-sentiment reading reflects “ongoing concerns about inflation and, to a lesser degree, uncertainty over the implications of negative news both domestically and abroad,” said Joanne Hsu, director of the survey.
Case-Shiller Shows Home Prices Rise: Home prices in the 20 biggest U.S. metros rose for the sixth month in a row, as the housing market continues to deal with a shortage of homes for sale. The S&P CoreLogic Case-Shiller 20-city house price index rose 1% in August, as compared with the previous month. On a year-over-year basis, home prices in the 20 major metro markets in the U.S. were up 2.2% nationally. With homeowners not keen on selling their homes, the U.S. housing market will continue to face a shortage of homes for sale, and by extension, see home prices rise. Interested buyers continue to converge on limited inventory.
Job Openings Show Strong Demand for Labor : Job openings in the U.S. rose slightly in September to 9.6 million, indicating that a still-growing economy still has plenty of demand for labor. The number of job openings is seen as a sign of the health of the labor market and the broader economy. Economists polled by the Wall Street Journal had forecast job listings to total 9.4 million. While job postings are still high, they have subsided from a record 12 million in 2022. Senior Federal Reserve officials want to see openings fall even further to loosen up the labor market and ease the upward pressure on wages. Rapidly rising wage could make it harder to get inflation under control. Job openings rose at hotels, restaurants, arts, entertainment and recreation — industries that tend to benefit when the economy is strong and Americans have money to spend.
U.S. Construction Spending on 9 Month Streak: Construction spending rose in September, as companies and the government continued to ramp up projects across the U.S. Construction spending reveals how much the government and private companies spend on projects, from housing to highways. The more the U.S. spends on construction, the higher the level of economic activity. Spending on construction projects rose 0.4% in September to nearly $2 trillion, the Commerce Department reported last Wednesday.
Fed Holds Rates Steady: The Federal Reserve on Wednesday kept a key interest rate at a 22-year high and left the door slightly ajar for another hike down the road if inflation doesn’t continue to slow. The decision to hold rates steady in a range of 5.25% to 5.5% was unanimous. Even though the economy expanded rapidly in the third quarter, Fed Chairman Jerome Powell said a series of interest-rate hikes since 2022 are putting downward pressure on inflation and economic growth. Powell said he expects the economy to soften in the months ahead — though the Fed is not forecasting a recession — and help reduce inflation further. He made his remarks in a press conference after the Fed decision. In a statement, the Fed said it would take into account a wide array of data to determine whether it would need to raise rates again “to return inflation to 2% over time.” Powell said the Fed was “proceeding carefully” and trying to do the “least damage” possible.
U.S. Worker Productivity Rises: The productivity of American workers rose at a 4.7% annual clip in the third quarter, the government said Thursday. Economists surveyed by the Wall Street Journal had projected a 4.3% decrease. That’s the fastest rate since the third quarter of 2020. Over the past four quarters, U.S. productivity has increased at a 2.2% pace. Some economists see an emerging higher productivity trend and this is will keep the Fed from needing to slow the economy dramatically to bring inflation down. Others think it is too soon to make any decisions about productivity growth.
U.S. Factory Orders Increase Sharply: Orders for manufactured goods rose 2.8% in September, the Commerce Department said last Thursday. That’s the biggest gain since January 2021. Economists surveyed by the Wall Street Journal were expecting a 2.5% gain.
WEAK INDICATORS
PCE Still Running Too Hot: The cost of goods and services rose a higher-than-expected 0.4% in September, keeping the pressure on the Federal Reserve as it weighs whether to raise interest rates again. Inflation as measured by the so-called PCE price index rose 0.4% for the second month in a row, spurred in part by higher oil prices. The index has risen 3.4% over the past year, unchanged from the prior month, the government said last Friday. That leaves it well above the Federal Reserve’s 2% target. The PCE price gauge is the Fed’s preferred measure of inflation. The worst bout of inflation in 40 years is slowly receding, but it still could be a few years before prices return to low pre-pandemic levels. So far rising rates have not slowed the economy, but higher borrowing costs are all but certain to depress growth in the months ahead.
Employment Cost Index Sharply Rises: A measure of what it costs businesses to employ workers rose a sharp 1.1% in the third quarter, keeping upward pressure on U.S. inflation. The cost of labor has risen by 1% or more for nine quarters in a row stretching back to the middle of 2021. Before that, the last time compensation rose at least 1% a quarter was in 2006. The increase in compensation in the past 12 months, however, slowed again to 4.1% from 4.2%. And it’s down from a 34-year peak of 5.1% in 2022. That’s still well above the average 2.7% increase in wages and benefits from 2017 to 2019, toward the tail end of an era of low inflation. The Federal Reserve wants to see compensation growth return to pre-pandemic levels as part of its effort to get inflation under control, but workers still have lots of leverage because of the tightest labor market in decades.
Consumer Confidence Continues It’s Decline : A survey of consumer confidence fell to a five-month low of 102.6 in October amid worries about inflation, rising interest rates and fighting between Israel and Hamas. Consumer confidence tends to signal whether the economy is getting better or worse. In good times, the index can top 120 or more. For the past two months, the future-expectations index has been below the 80 mark that often signals a recession ahead. Americans have become more worried about the economy due to rising interest rates, higher gas prices and a faltering stock market.
Chicago Business Activity Index in Contraction Territory: The Chicago Business Barometer, also known as the Chicago PMI, inched down to 44 in October from 44.1 in the prior month. The index has been in contractionary territory since August 2022.
ADP Employment Shows Labor Market Softening: Businesses in the U.S. created just 113,000 new jobs in October, payroll processor ADP said, in a potential sign of a slackening labor market. The annual rate of increase in wages, meanwhile, slowed again. Those who stay in the same job gained a 5.7% increase in pay in the last 12 months, down from 5.9% in the prior month. That’s the lowest level in two years. The labor market may have softened a bit, but it’s still quite strong. Layoffs are near record lows and the unemployment rate is only 3.8%.
ISM Manufacturing Index Lowest Since July: A closely-watched index that measures U.S. manufacturing activity fell 2.3 points to 46.7 in October, according to the Institute for Supply Management on Wednesday. This is the lowest level since July. Any number below 50% reflects shrinking activity. Manufacturing has been contracting for the past year. New orders were weaker in October. Production and employment also declined. Manufacturing had reached a floor of 46 in June and was starting to rebound, but higher interest rates caused firms to pull back capital spending plans.
U.S. Non-Farm Payroll Shows Labor Market Cooling: The U.S. added a modest 150,000 new jobs in October in a sign of a cooling demand for labor, as higher interest rates take a bite out of the economy. Still, the pace of job creation slowed sharply from a downwardly revised 297,000 increase in September that now looks like an aberration. Hiring in both September and August was not as strong as originally reported. The unemployment rate, meanwhile, rose a tick to 3.9%, the government said last Friday. That’s the highest level since the beginning of 2022. The Federal Reserve is betting the labor market will continue to soften and help reduce the upward pressure on labor costs, potentially giving it the leeway to end its latest cycle of interest-rate increases. Employment rose by just 99,000 if government is excluded. Public-sector jobs increased by 51,000 last month. The labor market is still quite sturdy, but businesses are not hiring as many people as they were a year ago. So long as most people are working and spending money, the U.S. is likely to avoid a recession, but if business sales and profits slow much further, companies are more likely to lay off workers and put the current economic expansion at risk.
ISM Services Index Hits 5 Month Low: An ISM barometer of U.S. business conditions at service-oriented companies such as retailers and restaurants slowed in October to five-month low of 51.8%, suggesting the economy has softened. The economy grew in the third quarter at the fastest pace in a decade, excluding the pandemic years of 2020-21. But higher interest rates and still-high inflation are bound to slow the economy in the waning months of the year. The October ISM report could be an indication of that. Employment-related challenges are also prevalent, with comments about increasing labor costs, as well as shortages.
Trade Deficit Climbs: The U.S. trade deficit climbed almost 5% in September to $61.5 billion, but it remained near a three-year low and was on track to post the smallest increase since 2020. Smaller deficits add to gross domestic product, the official scorecard for the U.S. economy. GDP grew at a rapid 4.9% pace in the third quarter. Imports rose 2.7% to $322.7 billion in September, the government said Tuesday. The deficit is on track in 2023 to be the lowest in three years, but the U.S. is still running historically high trade gaps. Yet if the economy slows and Americans can’t afford to buy as many imports, a falling trade deficit would actually be a sign of deteriorating U.S. conditions.
Wholesale Inventories Hit 13 Month Low: The level of inventories, or unsold goods, that U.S. wholesalers are keeping on hand fell in September to a 13-month low amid uncertainty about whether the economy can maintain its recent momentum. The so-called inventory-to-sales ratio slid to 1.33 in September from 1.36 in the prior month. The ratio measures how many months it takes to sell all the unsold goods sitting in warehouses across the country. Companies have scaled back production and have been more cautious about getting stuck with unwanted inventory because they are unsure if the demand can be sustained. Higher borrowing costs have dampened demand for manufactured goods and put more strains on the economy. The strain is evident in wholesale sales. They have risen less than 1% in the past year and are actually negative when inflation is taken into account.
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