THE MARKETS

📈 Stocks jumped again as the November rebound rolls on.

💼Economic News

Stocks rally on positive inflation data. The stock markets posted strong gains this past week, thanks to reassuring inflation data. The Producer Price Index recorded a 0.5% monthly drop in October — the biggest drop since April 2020.  

This is a positive sign for the Federal Reserve and could indicate that America’s central bank may hold off on raising interest rates in the coming months. Read more about what this inflation report means below. 

In October, US retail sales fell 0.1% from the month prior. This marks the first drop in retail sales since March and comes after a summer of particularly strong consumer spending. This decline in sales may signal that the impact of high inflation is beginning to affect US consumers. 

On the topic of inflation, both the Consumer Price Index and Producer Price Index registered a decline during the past week — a development that has provided some reassurance to investors.

👀 What to Be on the Lookout for This Week

Keep an eye out for these economic reports:

• Monday: No major economic reports scheduled

• Tuesday: FOMC Minutes Report, Existing Home Sales, Chicago Fed Report

• Wednesday: Durable Goods Orders, Weekly 30-Year Mortgage Rate Update, Jobless Claims

• Thursday: Happy Thanksgiving!

• Friday: Monthly Services, Manufacturing & Composite PMI

Here are the major companies reporting earnings this week:

• Monday: Zoom, Agilent

• Tuesday: Abercrombie & Fitch, Best Buy, Dick's Sporting Goods, Kohl's, Nordstrom, Lowe's, Urban Outfitters, NVIDIA, Baidu, HP 

• Wednesday: Deere & Company 

📰 In Other News

Government shutdown averted. In other positive economic news, the US government officially signed a short-term funding bill that will keep the government operating until 2024 and avoid a shutdown. This was the third fiscal standoff this year. 

A new app in town. Meet Flip, a new shopping app that has climbed to the top of the App Store charts. Flip embodies a fusion between TikTok and Amazon, featuring a user-friendly shopping interface with a scrolling feed showcasing products and a dedicated shopping tab. 

To date, Flip has enjoyed rapid growth in its user base, largely thanks to its generous referral program. The app’s users have the opportunity to get paid for referring friends, posting product reviews, and engaging or viewing content. Yet, these marketing strategies can be costly and don’t necessarily guarantee long-term success. 

US employers enlist veterans: The latest jobs report released just before Veterans Day revealed that the unemployment rate among veterans is one percentage point lower than the general population.  

Additionally, the number of companies participating in the SkillBridge Program — a Pentagon initiative that links service members with businesses — has surged from 150 in 2019 to approximately 3,800 employers today. Veterans are increasingly sought after by employers who appreciate their qualities of diligence, discipline, and humility.

Apple Pay and Google Pay may see stricter regulations. That’s because the Consumer Financial Protection Bureau has proposed new rules to ensure these widely-used apps meet the same strict standards as traditional banks. This could potentially level the playing field, giving traditional financial institutions a competitive advantage.

INFLATION UPDATE

🍂 Inflation Continued To Ease in October

October’s Report

October is peak Spooky Season — but fortunately for investors, there were no unexpected scares in October’s inflation report. The Bureau of Labor Statistics reported that the Consumer Price Index rose 3.2% annually in October, down from 3.7% in September but flat on a monthly basis. This is a significant improvement from 2022’s high of 9.1%, but still near double the Federal Reserve’s target 2% rate.  

In particular, energy and gasoline prices fell 2.5% and 5%, respectively. Other goods that decreased in price include lodging away from home, airline fares, used cars and trucks, and communication. Meanwhile, goods that increased in price include rent, motor vehicle insurance, medical care, recreation, and personal care. The net result from these price fluctuations was that overall inflation cooled.

Context Around This Report

Investors were particularly optimistic about this inflation report. All major stock indexes experienced a strong week. 

This positive inflation report came at an especially crucial time for Americans. Last month, US retail sales declined for the first time since March after roughly a year of particularly strong consumer spending. If inflation rose during this period, the simultaneous decline in sales could raise major concerns. Increasing prices combined with falling sales might serve as an early indicator of a potential recession. However, the easing of inflation suggests that the decline in sales is not as concerning. It is more likely that sales are merely cooling off after a year of unexpectedly strong performance. 

This economic cooling could actually be a sign that we are nearing a “soft landing.” A soft landing — the slowing of inflation without throwing the economy into a recession — has been the Fed’s goal since the pandemic. For a while, it appeared unlikely that the Fed would be able to accomplish this. But its strategy of raising rates has successfully helped inflation cool down from a high of 9.1% in June 2022 to 3.2% this past October, with no recession yet.

Looking Forward

At 3.2%, the Consumer Price Index continues to edge closer to the Federal Reserve’s 2% target. However, core CPI — which is watched more closely — unexpectedly rose 4% on the year. Although the rate is below forecasts of 4.1%, it is still over double the Federal Reserve’s target rate.  

Despite the elevated core CPI, October’s report was still viewed as positive news for investors, economics, and Americans as a whole.  

Looking ahead, many economists view this pullback in inflation, along with decreasing wholesale prices and a stable job market, as indicators that inflation will continue to cool in the coming months.  

Fed officials have left the door open for further hikes if necessary. But if the numbers keep trending in this direction, it won't be too long before interest rate cuts are back on the table.

YOUR ECONOMY

🏠 Navigating a Broken Housing Market

Today’s Housing Market

Home prices in America have been on a sustained upward trajectory for the better part of the last four years.  

According to Federal Reserve Economic Data (FRED), the average home price was $322,600 at the beginning of 2020. Today, FRED estimates that the average home price in the US reached $431,000 in Q3 2023, marking a 33% increase in roughly four years. Since 2020, home appreciation — the rate at which a property's value increases over time — has been roughly 9% per year.  

While this is great news for homeowners who secured low mortgages in a better housing market, it can be immensely frustrating for prospective buyers today. 

In an effort to lower home prices, the Federal Reserve has raised interest rates at the fastest pace in decades. By increasing borrowing costs, the Fed aims to reduce the number of homebuyers and bring home prices down. But while home prices have slightly declined from their peak in 2022, they remain out of reach for many Americans.

America’s Response

According to Forbes, the median cost of a down payment averages around $34,248. The required down payment amount can vary significantly based on factors like income and credit score, adding to the challenges of homeownership for many.

Even if the down payment isn't an issue, buying a home may not be cost-effective compared to renting. The average mortgage payment is now 52% higher than the average apartment rent, a premium worse than the rates that preceded the 2008 housing market crash. This means that taking out a mortgage to purchase a home can result in significantly higher monthly expenses compared to renting. So, even if buyers have the down payment covered, they still may not want to commit to a high monthly payment. 

With the average down payment out of reach for many Americans, some have stopped saving for a home altogether. Instead, they’re choosing to spend their money in other ways.

Best Time To Rent?

Many prospective homebuyers have come to accept that the housing market could remain challenging for years, not just months. As a result, they're delaying plans to buy a home and opting instead to spend on more immediately fulfilling experiences, such as concerts or vacations.

Others are choosing to reallocate their savings. ISS Market Intelligence reports that there has been a 15% increase in the number of new 529 college savings accounts opened in the third quarter compared to the previous year. Instead of continuing to save for a home, some families are choosing to put their savings to work in other ways. 

For prospective homebuyers, the current housing market can feel like the worst of both worlds: high home prices and high mortgage rates. While there’s still a chance that home prices will decrease. Experts at Bankrate reassure that they don’t anticipate a 2008-style crash, mainly due to the low inventory of homes nationwide.

💼 A Breakdown of Today’s Labor Market

Surprisingly Resilient Market

Since the onset of the pandemic, it seems as though the US labor market has been in a constant state of tug-of-war. In one quarter, market forces may give employers the upper hand. In the next, workers have taken the control right back. As a result, the job market has rapidly swung from one extreme to the other.  

For example, during the spring of 2020, unemployment briefly surged to 14.7% as approximately 23 million people were pushed out of work. However, in the years that followed, the pendulum swung back as the job market witnessed a stronger-than-normal supply. 

Today, the labor market remains strong with unemployment sitting at 3.9%. But today’s job market is also notably different than in years past.

Defining Today’s Market

Today’s job market is fundamentally different from past years in the following ways:

1. Remote work: Private surveys estimate that roughly 33% of employees now work fully remotely, compared to 17% before the pandemic. This trend is expected to continue, providing today's workers with more flexibility in their schedules than previous generations.

2. Teen employment: Teen employment has remained strong this past year, indicating a robust job market, especially in industries that typically hire teenagers, such as hospitality, warehousing, and transportation.

3. Declining degree use: College degrees are becoming less important in the workplace, largely due to rapid advancements in technology. Hands-on experience is increasingly more valuable than a degree. The online job firm Adzuna estimates that there are over 10,000 job openings paying $200,000 or more that do not require a four-year degree. As technology continues to evolve and the cost of college education rises, college degrees are likely to become less critical when securing employment. 

These three factors are defining today's job market and will likely continue to influence the employment landscape in the coming months.

Balancing Supply and Demand

The job market is a constant flux, driven by the ever-shifting balance between supply and demand. When there's an abundance of job openings but a shortage of workers, employees hold the advantage. But when job opportunities drop, employers regain control.  

Three factors that play a major role in the supply and demand of the job market are:

1. The age of the population

2. Birth rates

3. Political stances on immigration

Right now, all three of these factors are aligning to suggest the job market will remain tight for the foreseeable future. 

Approximately 4 million baby boomers are leaving the workforce each year, birth rates have been abnormally low, and there is a growing trend of stricter immigration policies from politicians. For these three reasons, experts anticipate that Americans should brace for a structurally tight job market in the coming years. 

Still, as experienced in 2020, the power balance in the job market can shift when you least expect it.

POCKET CHANGE

Members of Gen Z are 10% more likely to open new banking accounts than the general population. When selecting a provider, this generation prefers a strong digital interface, loyalty programs, and sign-up bonuses. 

McDonald’s and Crocs are teaming up to release a line of shoes featuring Mickey D’s mascots like the Grimace and the Hamburglar. The shoes will be priced from $70 to $75 and available at both Crocs retailers and wholesale partners. 

Only 8% of millionaires characterize themselves as wealthy, while 31% believe they are middle class. This is a sign that even the nation’s wealthiest individuals feel squeezed by inflation. 

Expect hefty discounts this holiday season, as retailers look to unload excess inventory. A comparatively small year-over-year uptick in consumer spending could also incentivize retailers to offer discounts.  

Las Vegas, San Antonio, and Phoenix have emerged as popular cost-effective markets for middle-class homebuyers. H&R Block reported this trend after analyzing 2022 tax data.