KCG Investment Advisory Services

Kimberly Good

315 Commercial Drive, Suite C1

Savannah, GA 31416



The Three Big Things - November 2023
Market Update
(all values as of 04.30.2024)

Stock Indices:

Dow Jones 37,815
S&P 500 5,035
Nasdaq 15,657

Bond Sector Yields:

2 Yr Treasury 5.04%
10 Yr Treasury 4.69%
10 Yr Municipal 2.80%
High Yield 7.99%

YTD Market Returns:

Dow Jones 0.34%
S&P 500 5.57%
Nasdaq 4.31%
MSCI-Europe 2.05%
MSCI-Pacific 1.82%
MSCI-Emg Mkt 2.17%
US Agg Bond 0.50%
US Corp Bond 0.56%
US Gov’t Bond 0.48%

Commodity Prices:

Gold 2,297
Silver 26.58
Oil (WTI) 81.13


Dollar / Euro 1.07
Dollar / Pound 1.25
Yen / Dollar 156.66
Canadian /Dollar 0.79

Macro Overview

Global financial markets reacted to the conflict in the Middle East war with caution, concerned that the hostility could erupt into a broader situation engulfing other countries and territories. A flight to the U.S. dollar and U.S. government bonds took hold as equity volatility rose in response to the conflict.

The Federal Reserve opted to leave rates unchanged during their most recent meeting, with Fed Chair Jerome Powell hinting that no further rate increases might be needed. The Federal Reserve bases its decisions on economic data that can vary dramatically from month to month, so some analysts doubt that the Fed has formally completed its rate hike strategy.  To the contrary, “JPow” announced at the International Monetary Fund meeting Thursday, that he is leaving the door open to further hikes and the comment initiated a +200pt sell-off on the Dow.

The Treasury Department announced that it plans to issue less longer-term debt, as the cost of interest payments for the government has increased tremendously as rates have risen. This led to a decrease in long-term Treasury bond yields as investors opted for higher-yielding short-term bonds. Some economists view this dynamic as an indicator that rates may be approaching a pinnacle.  But the results of the higher-rate debt auction were disappointing as investors preferred short-term securities at comparatively higher rates.

Growing concerns that the war between Israel and Hamas could spread throughout the region is prompting a shift towards global fixed income and the U.S. dollar. Oil and commodity prices have also been affected by the conflict as production and transportation constraints increase concerns.

The Treasury bond market experienced volatility in October that resembled the stock market. Hedge fund manager bets against U.S. government debt, flight to government bonds due to the conflict in the Middle East, and a flood of new debt issuance to fund swelling U.S. budget deficits contributed to the volatility. The yield on the 10-year Treasury bond reached 5%, a 16-year high before retreating back to below 5%.

The IRS plans to raise tax brackets and standard deductions by 5.4%.  There are rumblings of a 0% capital gains bracket.


Sources: Federal Reserve, Treasury Dept., Social Security Adm., Bloomberg

The Three Big Things - November 2023

Yields Hit Highs Then Reverse In October – Fixed Income Review

Yields on long-term Treasury bonds fell at the end of October as the Fed, the European Central Bank (ECB), and the Bank of England all held rates steady. Many analysts expect to see an unwinding of tight monetary policy in the coming months, leading to a possible decrease in bond yields. The yield on the 10-year Treasury ended October at 4.88% after reaching a 16-year high of 5% earlier in the month, appearing to be a downward trend to analysts. Stubborn inflationary pressures may keep rates from falling too quickly. (Sources: Treasury Dept., Bloomberg, EuroStat)

Global Stocks Hesitate As Uncertainties Mount – Equity Overview

Global stocks hesitated in October as concerns mounted regarding the escalation of the crisis in the Middle East. Earnings and economic headwinds also remain a focus as more companies report slowing earnings growth and conservative growth expectations. Major domestic equity indices were able to minimize devaluations during the month of October, ending the month minimally lower than the end of September. International developed and emerging market indices saw more of a pullback in October than U.S. indices, primarily due to a stronger dollar following the start of the Middle East conflict. (Sources: S&P, Dow Jones, Bloomberg)

Bank Deposits Heading Downwards – Banking Sector Overview

Consumers have been slowly depositing less money into their bank accounts over the past three years. As the pandemic shuttered restaurants and retail stores in 2020, bank deposits increased as consumers spent less and instead saved their cash. Generous government stimulus programs also led to consumers saving more as unused cash landed in bank deposits.

As businesses reopened and consumers began spending again in 2021, bank deposits fell as consumers decided to spend rather than save. Inflation also contributed to less savings and falling bank deposits as consumers found themselves spending more as the post-pandemic recovery drove prices higher.

Recent higher interest rates offered by banks did entice some to deposit more, yet deposits remain much lower than they were even before the pandemic. Banks struggled for years to capture deposits as rates stood at multi-decade lows up until 2022 when the Fed commenced its rate hike strategy. Some bond analysts believe that rates may start to decline as the Fed reacts to slowing economic data signaling dissipating inflation and consumer confidence.

Source: Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series




The Three Big Things - November 2023

How Deflation Develops and What It Does – Inflation Overview 

A gradual devaluation or decline in overall asset prices is known as deflation, which leads to lower prices on most goods and services. This eventually creates an unfavorable environment for companies to raise prices and maintain already elevated profit margins. Ironically, what has led to this environment are the lingering effects of inflation. As the pandemic diminished and consumers spent more, companies raised prices as demand increased, eventually bringing about inflation. Now, as demand dissipates and consumers spend less, prices head lower.

Economists suggest that long-term yields can directly portray deflation. As the 10-year Treasury bond yield has fallen since its peak in October, nominal GDP along with inflation has slowly fallen. Real wages have also contracted, leading consumers to refuse to pay higher prices but demand more lower-priced goods. Retail stores have resorted to discounting in order to increase sales and reduce unwanted inventories.

Commodities across the globe are also reflecting deflationary characteristics as prices have pulled back from the highs of 2021 and 2022, including lumber, natural gas, aluminum, copper, and wheat. The International Energy Association (IEA) for the first time predicted that global demand for oil will reach a peak this decade, indicative of possibly lower oil and gasoline prices in the future.

Fed Chair Jerome Powell mentioned that elevated long-term bond yields lessen the pressure for tighter monetary policy, meaning that the Fed may not need to raise rates further, thus allowing rising bond yields to slow economic activity.

Sources: Treasury Dept., Federal Reserve, IEA

Sources: Federal Reserve, Treasury Dept., Social Security Adm., Bloomberg

Baby Boomers Working Past Retirement – Demographics 

This year the youngest baby boomers are now 59 and the oldest are 77, according to the Bureau of Labor Statistics. As more baby boomers reach retirement, good health and financial obligations are driving more to work longer or find a new job.

As baby boomers retire, some are finding it necessary to return to work even in their retirement years. Data released by the Labor Department show that many baby boomers may have worked for the same employer for years, then retired, yet find themselves seeking work thereafter. There hasn’t been a growing trend of retirees doing this yet, but there has been a consistent number.

As of this past month, there are over 11.3 million workers age 65 and older which account for 18.8% of the total population, relative to 25 to 54-year-olds which represent over 103.7 million workers making up 81.0% of the employed civilian labor force.

Source: BLS; https://www.bls.gov/web/empsit/cpseea13


The Three Big Things - November 2023

Corporate Profits Corporate profit is one of the most closely watched economic indicators.  It indicates the financial health of our corporations.  We are mid-point in the third quarter S&P 500 earnings season, and while Energy, Materials and Health Care earnings have declined, eight of the eleven sectors are growing.  The magnitude and frequency of earnings surprises are above their ten-year averages (insight.factset.com). Corporations have yet to fully reckon with the higher borrowing rates and consumer spending has not yet slowed, but consumers available credit will eventually run out.  While that will slow the pace, fundamentals generally look good, and I believe growth will continue in the foreseeable future.  I think corporate earnings will continue to grow, but at single-digit rates.

Liquidity The S&P is up more than 5% between October 27 and November 3, following J Powell’s announcement on October 26th, about the quarterly debt management process called “refunding”, which is used to bring yields in line with current economic conditions.  This process generally takes place in the middle of each quarter, but this quarter occurred at the end of month one and the announcement came just a week before the Fed meeting.  ~$102 billion treasury bonds paying near 0% were called; and ~$112 billion bonds were issue at current rates, fewer than many had expected.  As a result of the smaller debt auction and the pause in treasury rate increases, we’ve seen a significant surge in the market.  Some project the rally will be short-lived, but by Nov 3, yields had fallen down to 4.5%, reducing borrowing rates and increasing bond valuations; both stocks and bonds are rallying.
Bond rates have the inflation to-date “baked in”.  Inflation increases are narrowing.  It is most likely that rates stay at their current ranges for longer, but not necessarily higher.  That would be the saving grace for our banking industry.
We may be reaching an inflection point.  Economic indicators are turning up, indicating an acceleration of corporate profits and cash flows in 2024.  The real impact on government debt service is two to three years out.  In any event, perhaps the refunding will act as the catalyst leading to a more stable, productive market.

Sentiment Volatility moves in both directions.  Stocks that move drastically in one direction have similar potential to move in the opposite direction.
Those of us who chose not to participate in the Magnificent 7 mega-cap tech stock rally in the first 6 months of 2023 have been more than a little disappointed in our performance year to date.  After losses in 2022 we’ve been looking for a recovery but had generally stayed flat in the first half.  June & July were promising, with stocks and bonds showing signs of returning to their “normal” behavior.  But part of that normal is the trend that August & September are most often, losing months.  So, we anticipated a better October, only to be struck with the reality of an Israeli-Hamas war with the potential of expansion.  In the face of all that, however, our economy continues to perform.
On the other hand, those who bought into the Magnificent 7 in 4Q22 had the timing right – until they didn’t.  Those stocks have now lost a lot of their 2023 gains in the second half. It has been proven statistically, that very few are able to time the market successfully.  Likely, the average investor experienced at least a part of the major losses in ’22, led by those same 7 stocks.  2023 returns were applied to a much lower basis, and until last week were eroding even further.
That’s the bad news.  That’s how we’ve been feeling.  That is the definition of market sentiment. Now the good news!  It is when market sentiment is at its lowest that the market reaches a point of inflection.

Based on these big three indicators, I am hopeful.