Market Update: December 12th, 2023

US on Cruise Control, while Canada Stumbles

The market appears to be on cruise control for the rest of the year with many of the large data points being released at this point. There is little change in the US as they are yet to make a case to cut rates, while in Canada we continue to weaken with lower inflation and lower employment.

Topics

The Week after Black Friday 

Unemployment & Inflation 

What to expect for the rest of the year   

The Week after Black Friday 

The S&P 500 returns 0.76% for the week following Black Friday. This is considered a flat return (between -1% and +1%) for the week and if history is correct, it would tell us that the market should be pretty flat for the next 3 months. When this happens the median return for the following 3 months has been 1.76% since 1990.

The holiday buying season was met with a little controversy which led to this flattish return. Many polls suggest consumer confidence was low and projected that people will be spending less in the future. While people recognize that confidence is low, consumers are saying one thing and doing another. American Express released in their comments that spending on Travel and Entertainment saw strong growth as of late. While the mood is subdued, Americans will continue to spend as the majority have been less affected by rate hikes.

Unemployment & Inflation

US employment did tick up, but this did include both the UAW and SAG individuals on strike going back to work. Therefore, do take this number with a grain of salt. Canada's unemployment ticked up to 5.8%, showing continued weakness in our job market.

While the confidence is low, the US continues to putter along, and people remain employed. They are showing cracks, but it is not broken or bubbling. Canada on the other hand has continued to get worse as unemployment presses towards 6%. There is continued weakness in the key areas of Finance, Insurance, Real Estate, Rental, and Leasing. Also, wage growth has stalled and average hours worked per week is down.

In Canada, there appears to be no reason to increase rates with this fragile economy and unemployment near 6%. If we see that cross 6%, there will be a strong case for Canada to start cutting rates, especially with inflation below 3%.

US Inflation came in slightly lower at 3.1% but investors were expecting a softer number with such weakness in gas and oil. There was little there to force the Federal Reserve’s hand in sooner rather than later rate cuts. The economy can be defined as “stable for now”.

What to expect for the rest of the year 

Not much. With everything falling in line for the US, there is not much data to come out between now and the end of the year. It does not appear there is a strong case to increase or decrease rates at this point. They will need to wait for more data next year to give a better sign of things to come.

In Canada, we have one more inflation print on the 19th, but there does not appear to be much that can change our fate. Cuts will start in the first half of next year and continue for the foreseeable future. Unless we either get a spike in inflation or jobs but neither looks promising. Excess Demand has been ripped out of our economy, with Household Consumption flat for 5 quarters now. If it wasn’t for the government increasing their spending by almost 2% last quarter, we would be in a recession.

Summary

Enjoy the holidays! At this point, the market may move up or down going into the end of the year but unless there is a global event there is not much fundamentally that can change the current paths the US or Canada is on. In Canada, the effects are starting to show and with the recent decrease in oil, it will be hard to see inflation growing.

Sincerely,

‍

Justin, Konrad, and Merriel

More articles and information are available at www.knowprotectgrow.com

Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research

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