Market Recap – December 1, 2023

Summary:

  • The Federal Reserve’s favored gauge of inflation, the Personal Consumption Expenditures inflation measure, has moderated to a year-over-year change of 3%. Meanwhile, Core PCE (which excludes food and energy) stands at 3.5%. [1]
  • OPEC+ has reached an agreement to curtail oil production by an additional 1 million barrels per day in an effort to bolster oil prices. [2]
  • Chinese stock markets have recently plunged to their lowest levels in four Nevertheless, China is actively intervening to support these markets by implementing increased deficit fiscal spending and utilizing state funds to purchase domestic ETFs. [3][4]

Chart of the Week:

Outlook:

  • With the unemployment rate recently increasing by 0.5% from its previous low of 3.4%, we anticipate a continued slowdown in the labor market. This deceleration is fueled by a reinforcing mechanism stemming from reduced consumer It’s worth noting that a potential delay in this trend could occur if credit standards relax, leading to increased borrowing for spending purposes. [5]
  • The Federal Reserve has concluded its interest rate hikes for this cycle and is expected to maintain a steady interest rate policy until Q2 of 2024, followed by a gradual decrease. However, it’s important to acknowledge that a supply-side shock could potentially alter this outlook.
  • Although oil prices are approaching their cycle lows, concerns about demand appear to be exaggerated. Nonetheless, the unexpected surge in supply growth within the U.S. market has pushed the overall market equilibrium Despite this increase in supply, our outlook remains optimistic, with the expectation that oil prices will remain above $70 throughout the first half of 2024, and then continue to trend upward beyond Q2 of 2024 as concerns about demand begin to ease. [6]

Sources:

  1. The Fed’s Preferred Inflation Measure Eased in October – The New York Times (nytimes.com)
  2. OPEC+ Agrees to Significant Oil-Production Cut (msn.com)
  3. China Fiscal Expenditure (tradingeconomics.com)
  4. As Chinese Stocks Tumble To 4 Year Low, Beijing Steps In, Buys ETFs | ZeroHedge
  5. Civilian unemployment rate (bls.gov)
  6. United States Crude Oil Production (tradingeconomics.com)

Bridge Advisory LLC Disclosures

Bridge Advisory, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Investment Advisory Services offered through Bridge Advisory, LLC. Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Information herein has been obtained from sources believed to be reliable, but Bridge Advisory, LLC. does not warrant its completeness or accuracy; opinions and estimates constitute our judgment as of this date and are subject to change without notice. This newsletter expresses the views of the authors as of the date indicated and such views are subject to change without notice.

By: Nick Colletta, CFA, CAIA

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