We hope everyone had a nice Thanksgiving holiday with family and friends. We wanted to take some time this week to go over a few reasons for investors to be thankful.
- Stocks rallied again last week and are now up four weeks in a row.
- The S&P 500 is up close to 20% on the year, one big reason to be thankful.
- The economy remains strong, the consumer is healthy, the wall of worry is intact, and manufacturing is bottoming.
- These factors are tailwinds as we head into 2024 and likely beyond.
Stocks Are Up Nicely
The S&P 500 is up 20.5% for the year so far, a very solid performance in the face of many investor concerns. We came into this year overweight equities and predicted no recession. It wasn’t a popular view, but fortunately the market has played out close to how we expected.
But what about all the causes for concern? Here’s the thing — all years have worries and concerns. One year ago, nearly every strategist and economist on TV was telling us the bear market wasn’t over and a recession was a near certainty. Fortunately, they’ve all been wrong. It’s been a great year for stocks, which is a reason to be thankful.
The Consumer Is Strong
We’ve been hearing for two years that the consumer was tapped out and the economy was headed for a recession. Many economists believed factors such as the yield curve, M2 money supply, the Conference Board’s Leading Economic Indicators (LEI), and credit markets indicated trouble was coming and the consumer was cracking. But the consumer has continued to surprise, and we expect consumption to remain strong.
Our economy is still adding approximately 200,000 jobs a month and real wages are reaching new highs, which are both great signs of consumer health.
While small cracks may be forming with some consumer loan delinquencies moving higher, in many cases delinquencies are well beneath pre-pandemic levels. The consumer remains very strong, and consumption jumped significantly last quarter. In fact, retail sales and food services are running at 5% above pre-pandemic trends, with no sign of slowing down.
Markets Climb a Wall of Worry
As the saying goes, the stock market climbs “a wall of worry,” which it has undoubtedly done so far this year. In late October, we at Carson said a major low was likely, as it was clear that overall sentiment had turned too bearish. Remember, once everyone who wants to sell has sold, only buyers are left.
In the New York Fed’s October survey of consumers, the mean probability of higher U.S. stock prices in a year was the lowest it had been in 2023!
But that was just a survey. Let’s look at the hard data of what investors were really doing. According to S&P Market Global, retail investors sold stocks last month like rarely in history. Retail investors sold stocks to the tune of $15.6 billion in October, which was more than in October 2022 at the bottom of a vicious bear market. Unfortunately, this likely means many investors sold right as the market made another major low. But from a contrarian point of view, this is how lows form.
Manufacturing went into recession last year, but this year the hard data has been much better than the soft survey data has indicated. The truth is manufacturing tends to lead the economy historically, and it isn’t a coincidence that manufacturing lagged over three consecutive negative earnings quarters year over year. The good news is signs indicate manufacturing is bottoming and should begin to grow next year.
The chart below shows major surges in real manufacturing construction and high-tech construction spending. Much of the growth is due to legislation such as the CHIPS Act, which is incentivizing companies to bring semiconductors and other high-tech manufacturing back to the U.S. (onshoring). But it is hard to consider this a negative event, and it will likely lead to better productivity and economic growth.
We are aware of the many worries and concerns in the marketplace, but we hope you continue to see the numerous positive signs. As we head into this holiday season, we expect continued strength in equities, and that is something to be quite thankful for!
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
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