Wentz Weekly Insights
Eventful Week Concludes With the Best Week of the Year For U.S. Stocks

It was a critical week for stocks, with the S&P 500 down 10% over the past three months heading into a week full of key events that could have brought on weaker sentiment and more volatility. However, the news coming out of several events was not as bad as feared, leading to one of the strong rallies of the year, for both stocks and bonds.
Heading into the week, stocks were experiencing oversold conditions and a steady increase in short positions (where investors bet on stocks to decline), particularly by hedge funds. But markets were met with a perfect set up with November beginning on Wednesday and entering the strongest part of the year.
According to Bloomberg, markets saw the largest cross-asset rally last week since November 2022, driven by Fed Chairman Powell taking a less hawkish tone, with stocks, bonds, and credit rising in tandem. Other items driving the rally was a better than feared Treasury borrowing plan for the next three months (see “other news” section below), softer economic data, better earnings reports, a spike in short positions that created a short squeeze, oversold conditions, and strong seasonality. The S&P 500 and NASDAQ saw their best week of the year, rising 5.9% and 6.6% respectively, while Treasury yields saw the largest decline since March with the 10-year note falling 32 basis points to 4.52%, the lowest since September.
The three weeks leading up to last week saw selling by hedge funds that Goldman Sachs said was the second biggest selling spree of the past decade as recessionary worries mounted. In addition, short bets on US Treasuries were right near the highest levels since records began. Short positioning within stocks played an important role as well – a basket of the most shorted stocks rose 13%, according to Bloomberg, versus the average stock rising 5.9%. Meanwhile, rate-sensitive growth and speculative stocks fared even better, rising nearly 20%, while the small growth style rose over 7%. At the same time, defensive sectors like consumer staples and health care rose less than 3.5%.
The technical factors (like short positioning, oversold levels, and seasonality) were only one side of the rally. The other was the weaker economic data and most recent FOMC meeting. Data last week centered around the labor market and employment costs – job openings held steady, jobless claims increased slightly, ADP reported less payroll gains than expected, while the DOL said less jobs were added than expected and the unemployment rate increased. At the same time, employment costs held steady, wage growth cooled, and unit labor costs surprisingly declined. Labor market data is a lagging indicator, but this was all consistent with a slowing labor market. This is good news on the inflation front and provided ammunition for the Fed that additional rate hikes may not be necessary.
However, in our opinion, this is also consistent with data that we see prior to an economy falling into a recession.
The FOMC meeting came between all of this data, so the Fed was not able to take all this into consideration prior to their policy decision Wednesday afternoon, and prior to Chairman Powell’s press conference in the afternoon. The Fed decided to make no change to monetary policy, keeping interest rates at 5.38%. In the policy statement it upgraded its assessment of the economy, describing economic growth as “strong” versus “solid” and job gains that have “moderated but remain strong” versus “slowed.”
But market reaction really came after Powell’s press conference, where investors saw his tone as slightly more dovish, but we thought it was consistent with the September meeting. Powell refused to say that policy was “sufficiently restrictive” but that we were closer to that level and left out the possibility of additional rate hikes. As with last meeting, the Fed will make its next decision at the time of the meeting based on the totality of the data and information it receives on the economy and progress toward stable inflation. Powell talked a lot on how tighter financial conditions will impact the economy going forward and how the full effects of interest rate increases have still yet to be felt fully throughout the economy.
As we have mentioned previously, it typically takes 12-18 months to feel the effects of rate increases. The first rate increase was March 2022, almost exactly 18 months ago, and the Fed did not begin to aggressively raise rates until July. The last rate increase was July this year – this tells us there is still a lot of time before the full effects are felt, and another reason we believe there will be continued slowdown in economic activity and potential recession.
The expectation for a rate cut was pulled ahead to June 2024 after the meeting, up from July prior to the meeting. Stocks took off after the adjustment in expectations while Treasury yields plunged to the lowest level in two months, making it the largest rally in Treasuries since the outbreak of the pandemic March 2020.
With markets moving into a seasonally strong part of the year (November and December are the best two months of the year), strength is likely to continue over the short-term, but risks remain and the outlook is murky, which we think will continue to lead to significant volatility heading into 2024.
Week in Review:
U.S. stocks bounced back 1.20% on Monday with strength across the board, just one day after the S&P 500 hit correction territory. All 11 sectors were higher with communication services and financials leading the way while energy lagged due to a 3.8% slide in oil. There were not any big headlines, but the Treasury quarterly borrowing estimates came out which showed a slightly lower borrowing estimate for Q4 ($776 billion) than expected.
There were many individual stock movers Tuesday due to earnings reports. Morning news included the Bank of Japan loosening its yield curve control further to allow its government bond yield to fluctuate at a higher rate, which was expected due to recent press reports. In additional, China growth worries mounted after disappointing manufacturing and services data. In the U.S., the employment cost index increased as expected at a quarterly rate of 1.1%, while home prices rose for the seventh consecutive month after a low in January. Treasury yields saw a slight move higher while stocks had another positive day, seeing all 11 sectors higher again, and the S&P 500 rising 0.65%.
Wednesday was a day full of headlines – earnings continued to be in focus with very mixed results again and data in the morning included lower job openings, slightly lower ADP payroll growth but still positive, continued weakness in manufacturing with the PMI and ISM surveys, and construction spending that remains strong. The Treasury refunding announcement in the morning alleviated some concerns in the Treasury market. The big highlight however was the Fed meeting that saw no changes in rates and a press conference that markets took as a more dovish tone from Chairman Powell. Yields moved lower in the morning from the refunding announcement and even further after the Fed meeting, with the 10-year yield a full 20 basis points lower, while stocks were higher across the board, driven by rate sensitive sectors, and the S&P 500 up 1.05%.
The rally in stocks continued going into Thursday morning trading with the move to the upside accelerating through the day on improved sentiment and after the US worker productivity data showed a surprise decline in labor costs, both helping push yields lower. The risk-on trade was strong, and stocks saw the best day of the year with a 1.89% increase in the S&P 500 while Treasury yields fell again. After the close Thursday, Apple released its highly anticipated quarterly results – last quarter’s results beat expectations, but its current quarter forecast failed to meet estimates.
Apple’s earnings led to a more cautious start to the day on Friday with stocks futures lower before the open. Then the key employment report for October was released later in the morning and showed slightly slower job growth than expected, an increase in the unemployment rate, and lower wage growth, leading to yet another move higher in stocks and bonds (a cooling in job gains and wage growth is a positive in the fight against inflation). Stocks rose for the fifth consecutive day after a 0.94% move higher in the S&P 500.
Stocks and bonds saw one of the strongest weeks of the year over more dovish stance on monetary policy. Treasury yields saw a sharp pullback, particularly on the middle of the curve with the yield on the 10-year note down 32 basis points to 4.52%, the lowest in over a month, and the shorter-term 2-year note down 16 basis points to 4.87%. Gold rose 0.1%, the dollar index was down 1.4%, and oil ended down nearly 6% as the war between Israel and Hamas did not escalate. It was a strong week for stocks, particularly rate-sensitive stocks, with the major US indices finishing as follows: Russell 2000 +7.56%, NASDAQ +6.61%, S&P 500 +5.85%, and Dow +5.07%.

Recent Economic Data

  • The employment cost index, an important quarterly read on compensation costs such as wages and benefits, rose at a seasonally adjusted rate of 1.1% in the third quarter, coming after a 1.0% increase in Q2. The increase was due to a 1.2% increase in wages and salaries and a 0.9% increase in benefits. Over the past 12 months compensation costs are up 4.3%, drive by a 4.6% increase in wages and salaries and 4.1% increase in benefits. No surprises here, mostly in line with expectations.
  • The number of job openings rose about 50k in September to 9.553 million, although about 1.3 million lower than a year earlier, and the highest since May. Job openings increased the most in food services and recreation, and declined in other services, government, and information. The number of quits was unchanged at 3.66 million, while layoffs fell about 150,000 to 1.52 million.
  • ADP reported its data showed 113,000 new payrolls were added in October, about 20k below the consensus estimate. For the first time of the pandemic recovery, leisure and hospitality (with an additional 17k payrolls) was not the sector leading the way, this month it was from education and health care with an increase of 45k payrolls. Small and large sized companies saw job gains while mid-sized companies saw a small decline.
  • The number of unemployment claims filed the week ended October 28 was 217,000, an increase of 5,000 from the week prior with the four-week average up 2,000 to 210,000. The number of continuing claims was 1.818 million, up 35,000 from the prior week for the highest level since April. The four-week average of continuing claims was higher at 1.758 million.
  • The Department of Labor said its establishment survey showed 150,000 payrolls were added in October, which was slightly below the estimate by economists, and outside June, was the lowest payroll gains since 2020. Payroll growth over the last 12 months has averaged 243,000 per month. Gains were seen the most in health care, government, and social assistance, and declined in manufacturing due to the strikes. At the same time, the household survey showed the labor force decreased by 201,000 people and the number of people employed fell 348,000. This resulted in a 0.1% increase in the unemployment rate to 3.9%, the highest since January 2022. The underemployment rate rose 0.2% to 7.0%. The average wage increased 0.2% and moved above $34.00/hour for the first time ever. Wages are up 4.1% from a year ago, on average. At the same time, the average workweek fell 0.1 hours, which is equivalent to thousands of jobs. The data is consistent with a slowing labor market, something that is expected as the economy continues to cool.
  • US worker productivity in the third quarter saw the strongest increase since the third quarter 2020, rising at a 4.7% annualized pace. On a year-over-year measurement, productivity is up 2.2% from the third quarter last year. Worker productivity is one of the most important factors in driving longer-term economic growth. The increase in productivity was driven by a 5.9% increase in output and offset by a 1.1% increase in hours worked. Meanwhile, unit labor costs decreased 0.8% in the quarter, reflecting a 3.9% increase in compensation and offset by the 4.7% increase in productivity. Labor costs are up 1.9% over the past 12 months.
  • Home prices continued to trend upward, after seven months of declines to end 2022, home prices are now up for the seventh consecutive month. According to the Case Shiller home price index, home prices increased 0.9% in August (a seasonally adjusted number, it increased 0.4% before seasonal adjustment), coming after a 0.6% increase in July. Home prices are now up 6.4% from the lows in January and are back at record high levels. The report notes regional differences in price changes are substantial – annual changes are +5.0% for Chicago and New York, +4.8% for Detroit, but Las Vegas saw a 4.9% decline, Phoenix -3.9%, and San Francisco -2.5%. Higher mortgage rates have weakened demand, but have weakened supply even more, contributing to price increases.
  • The Purchasers Manufacturing Index (PMI) for October was 50.0, a level that indicates the difference between contracting conditions and expanding/growing conditions. There was a renewed rise in new sales at goods producers with new orders increasing for the first time in six months. However, input costs rose at the fastest pace since April, driven by oil-related materials, employment dropped for the first time in 39 months with firms choosing not to replace voluntary leavers, and demand conditions were relatively muted overall with output expectations lowered.
  • The Institute of Supply Managers manufacturing index (ISM) was 2.3 points lower for October with the index continuing to stand in contraction territory at 46.7 for the 12th consecutive month below 50. New orders, at 45.5, fell further in the month. The prices index improve 1.3 points to 45.1, which a reading below 50 is positive in the fight against inflation, while employment fell back into contraction at 46.8. Only two of the 18 major industries saw growth in the month.
  • The ISM non-manufacturing index, a survey on the services sector, was 51.8 for October, slowing from 53.6 in the previous month, but importantly remaining in expansion. Business activity slowed, reflecting the 54.1 reading on activity, which slowed from 58.8 last month. The prices index declined slightly but remained elevated at 58.6. In the month, 12 of the 18 industries reported growth.
  • Construction spending in September was 0.4% higher than August, continuing its streak of increases. Spending was driven by residential projects, where spending rose 0.6%, as well as nonresidential, which increased 0.3%. Residential construction spending (such as housing) has seen a big improvement in the past couple months but is still down 2.1% from a year ago. Meanwhile, nonresidential spending has been the strong spot, up 19.0% over the past year.
  • The consumer confidence index, according to the Conference Board’s survey, was 102.6 for October, slightly ahead of the expectations but a few points lower than the September reading. For comparison purposes, the high was 114 over summer while the October reading was the lowest since May. The present situations index fell 3 points to 143.1 for the lowest level in a year, while the expectations index fell one point to 75.6, a level that historically signals a recession within the next 12 months.

Other News

  • The Treasury Department said its borrowing estimates for the fourth quarter are lower than previous estimates due to higher expectations on tax receipts. However, with borrowing estimated to be $776 billion in the quarter, it would still equate to a new record. This is about $76 billion lower than the estimate it provided in July. It also said it estimates borrowing to total $816 billion during the first quarter 2024 (January through March).
  • In addition, the Treasury said it will offer $112 billion in Treasuries to refund about $102 billion maturing in November (raising $10 billion in new cash from investors), with $48 billion in 3-year notes, $40 billion in 10-year notes, and $24 billion in 10-year bonds. The increase in the mentioned long-dated debt was smaller than what was feared, relieving some market concerns over the refunding announcement, as it will get more of its funding from shorter dated securities. It said it intends to gradually increase the coupon sizes in upcoming auctions and anticipates one more quarter of increases to coupon sizes will be need. For reference, the last 10-year coupon on August 15 was 3.875% (versus its yield of 4.90% today). The Treasury said it took a range of factors into consideration when deciding to issue fewer longer-dated bonds and notes, and more shorter-dated securities like bills and notes, including the rise in yields on longer-term debt.
  • Japan has approved a $112 billion package that will provide stimulus to its economy. The set of measures includes temporary cuts to income and residential taxes, payouts to low-income households, and an expansion in energy subsidies to reduce gasoline and utility bills. The government estimates the plan will increase Japan’s GDP by 1.2% on average over the next three years.
  • Global Central Bank headlines:
  • The Bank of Japan said after its most recent policy meeting last week that it will keep its policy rate unchanged but it will tweak its yield curve control to make it more flexible. Recall that it has been purchasing an unlimited amount of Japanese government bonds to keep the yield on the bond pegged at 0%, then increased that several months ago to allow the yield to rise to a limit of 1.0%. In its announcement it said it would now use the 1.0% as a reference rate, instead of as a cap. It was slightly less hawkish than was expected, based on recent press reports. Regarding its economy, it said it was recovering moderately, but slowing due to a slowing global recovery, and increased its inflation projections.
  • The Norges Bank kept its policy rate unchanged at 4.25%, but kept a hawkish tone and indicated it may raise rates another 25 basis points in its December meeting.
  • The Bank of England held its policy rate steady for the second consecutive meeting and hinted that rate cuts are not planned until 2025, longer than what was expected. The decision and path forward remain mixed between policymakers, with six of the nine voting members preferring to keep rates unchanged. In addition, it said it expects growth to remain flat over the next two yeas.

WFG News

Medicare Open Enrollment

Medicare Open Enrollment period runs from October 15 to December 7 each year
  • During this period, individuals are able to make changes to their current Medicare coverage. Individuals on Medicare should receive an Annual Notice of Change and/or Evidence of Coverage for Medicare Advantage or Part D plan. This is a good time to review coverage, as medical needs, benefits, and premiums may have changed over the year. During this time here are some things to consider:
  • Will your primary doctor still accept you Medicare Advantage Plan?
  • Have your medical needs changed? Different plans offer different benefits and different costs
  • Are there comparable, lower cost plans available? Don’t forget to consider out-of-pocket costs when comparing options
  • Are you medications still on your plan’s list of covered medications?

Office Update

Please take note Wentz Financial Group will be closed Friday November 24th, the day after Thanksgiving.

Toys for Tots Toy Drive

Wentz Financial Group is excited to have partnered with the United State Marine Corp on their Toy for Tots toy drive in 2023. Starting next week we will begin collecting toys to be donated to the Marine’s efforts. In addition we are hosting an open house the Friday before Thanksgiving focused on the project. Please stop by WFG on November 17th between 11:00 AM and 2:00 PM to help us in this worthwhile endeavor.
Marine Corp Toys for Tots Drop Off – November 17th 11:00 AM – 2:00 PM

Career Development Day

Monday, December 18, 2023 – All Day
Do you know someone in high school or college looking to get their foot in the door of real life work experience? Wentz Financial Group will be hosting its 3rd Career Development Day at our office on December 18. The day will not only be for those looking to get a first look into financial services field but is open to any student wanting to get their feet in the door of the professional world. Don’t forget to RSVP by responding to this email or calling the office at 330-650-2700.

The Week Ahead

The week ahead will be much slower than the prior several weeks. The economic calendar is light of data releases. One of the highlights will be the Fed’s Senior Loan Officer Opinion Survey, which will provide greater insight on the health of loan demand and consumers/businesses. Trade data is released Tuesday morning, jobless claims are out of Thursday, and the first November University of Michigan consumer sentiment survey results are out Friday. There will be a handful of public appearances from Fed policymakers, including by Chairman Powell on Wednesday and Thursday. There are still a handful of companies reporting earnings this week, including roughly 10% of the S&P 500, but it will be much less than the past three weeks, with a bigger focus on smaller size companies and the energy sector. Highlights include Goodyear Tire on Monday, D.R. Horton, eBay, Uber, Occidental Petroleum on Tuesday, Warner Bros Discovery, Ralph Lauren, Disney, MGM, AMC on Wednesday, and Wynn and AstraZeneca on Thursday.