Wentz Weekly Insights
Stocks Higher, But Gains Remain Extremely Narrow

If you look at the index levels, stocks were higher again last week with the S&P 500 gaining 1.31%. However, as has been the case all year, the average stock is not performing so well. While the cap-weighted index gained 1.31%, the equally-weighted index (where all stocks in the S&P 500 carry an equal weight) lost 0.6%. Even worse was small caps, measured by the Russell 2000, lost 3.15%.
Meanwhile, the NASDAQ was the best performer for the week with a 2.37% increase, and once again driven by the top six names in the index (for both the S&P 500 and NASDAQ). Apple gained 5.66%, Microsoft 4.78%, Alphabet 2.83%, Amazon 3.58%, Nvidia 7.40%, Meta 4.50%, and the six names combined contributed 1.33% to the S&P 500’s weekly gain.
These numbers show just how narrow the upside move in stocks have been. Unless these six names are owned in investment portfolios, performance has been rather muted this year. Year-to-date through Friday, the S&P 500 is up 15.00% while the equally weighted S&P 500 is up just 1.02%, with small caps down 3.18%. To show how extreme this has become, the chart below from Raymond James shows the performance difference between the S&P 500 and the equally weighted S&P 500 with the levels approaching those of the tech bubble in the late 1990s (the lower the line the better the S&P 500 versus the average stock).
There is still the concern for an economic slowdown, which is one of several reasons why small caps have underperformed large caps this year. The other reason is interest rates. Smaller sized companies typically carry a higher debt load as a percentage of assets compared to larger companies and when interest rates rise, the cost to service that debt increases too, pressuring profits.
We saw a dramatic drop in Treasury yields two weeks ago when the 10-year Treasury note’s yield fell from 5.00% to 4.52%, which sparked the recent rally in stocks. Last week the rally in Treasuries (recall when yields fall, bond prices rise, and vice-versa) took a breather with the 10-year yield rising back up to 4.65%.
There were many Fed policymakers making public appearances with comments on monetary policy, but the most notable was a panel discussion on Thursday in which Chairman Powell participated in. Markets were most interested to see if commentary would be different than the tone Powell gave during the FOMC meeting two weeks ago given the substantial drop in Treasury yields. Powell mentioned how inflation has given us a few “head fakes” already and how the Fed is “not confident” inflation is on a sustained path lower. Markets took these remarks as slightly more hawkish, which helped push yields higher.
In addition, the auction of $24 billion in 30-year Treasury bonds was poorly received, with very low retail demand. Higher government debt (more supply) and very little appetite for Treasuries (less demand) from investors has been a consistent theme this year after Congress increased the debt ceiling and has also contributed to the move higher in longer-dated Treasury yields and the continued slide in bonds.
Done so quietly at the end of the week after market close on Friday, Moody’s (one of the big three credit rating agencies) downgraded the outlook for the US credit rating to negative from stable. Moody’s cited the federal deficit as a “key driver” to the downgrade in the outlook, adding “The downside risks to the US’ fiscal strength have increased and may no longer be fully offset by the sovereign’s unique credit strengths.”
These factors mentioned could continue to put downward pressure on longer-dated Treasury bond prices and continue to push yields higher. The move higher in yields in early Fall was one of the factors that led to a market sell off. With bonds continuing to see unprecedented volatility and stocks remaining weak and seeing additional risks with earnings and a potential recession, money market investments earning over 5% remain a good opportunity to park cash until we see more certainty on the outlook.
The week ahead is another important one with inflation data on Tuesday, retail sales on Wednesday, and many retailers reporting latest quarterly earnings results. We may also get additional commentary on trends through the first couple weeks of the holiday shopping season which could provide greater insight on the health of the US consumer.
Week in Review:
Markets opened the week with an uneventful session, still digesting news from a very busy week prior. Stocks bounced back and forth, ultimately closing higher but off the highs of the day. The S&P 500 saw a gain of 0.18%, but the upside was carried by a smaller group of names. Breadth was poor – volume of declining stocks was over double the volume of advancing stocks and a higher percentage of stocks declined on the day, with a particularly weak day for small caps as the Russell 2000 fell 1.29%. A closely followed survey of banks on loan conditions was released Monday that indicated loan demand was weaker and lending standards were tighter over the past three months, which was expected with the Fed’s policy decisions.
Trade data on Tuesday morning showed a slightly wider US trade deficit, due to a larger rise in imports, a reversal from the recent trend, though imports remain significantly below 2022’s levels, signaling weaker domestic demand. A handful of smaller tech companies reported Q3 results, mostly better than expected. Other news items included weak trade data from China, the Reserve Bank of Australia raising rates for the first time in four meetings, not giving evidence rate hikes are over, and mixed commentary from Fed policy makers. Oil fell another 4.3% and moved under $80 per barrel for the first time in two months from economic growth concerns, Treasuries were higher amid lower yields, and stocks rose slightly for the seventh consecutive increase for the S&P 500, the longest in 24 months.
Wednesday was another busy day of Fed speak, which did not lean one way versus the other and it ended up being a quiet day in the markets. The next deadline on government funding for the full fiscal year received a little more attention with Republicans unable to find a consensus in a closed doors meeting. An auction of 10-year Treasury bonds saw slightly weaker demand, but the 10-year yield still finished 5 basis points lower. Stocks were up for the eighth consecutive day, the longest such streak since October 2021, with a 0.10% gain, led by big tech with overall market breadth weak again.
Stocks were relatively unchanged again Thursday morning with the big event of the day a public appearance by Fed Chairman Powell. Similar to Wednesday, an auction of 30-year Treasury bonds saw even weaker demand, this time sending yields over 10 bps higher on the day with the 10-year finishing at 4.63%. Stocks were mostly higher until Powell spoke in the afternoon and gave a slightly hawkish tone, citing sticky inflation, which reversed course for stocks and sent the major index 0.81% lower for the first decline in eight sessions.
Global stocks traded lower on Friday, following US stocks lower from Thursday. In the US, stocks opened higher in an uneventful day on Friday. In data, consumer sentiment deteriorated again, with sentiment falling to the second lowest reading of the year and inflation expectations moving to multi-year highs. Markets shrugged off the disappointing data and rallied throughout the day with all sectors higher, ending the day at the highs of the session with a 1.56% increase for the S&P 500.
It was a very mixed week in US markets, Treasury bonds fell across the curve while large cap growth stocks performed well but small caps significantly underperformed. Crude oil fell 4.1% for the third consecutive weekly decline over easing Middle East concerns and rising global demand worries. The dollar index was 0.8% higher and gold fell 3.1%. The 2-year Treasury yield rose 29 basis points to 5.06% while the 10-year rose 13 bps to 4.65%. Another very busy week of earnings, particularly with smaller sized companies saw very mixed results, but the theme is unchanged with Q3 beats but caution on the outlook in Q4 and 2024. The major US stock indexes finished as follows: NASDAQ +2.37%, S&P 500 +1.31%, Dow +0.65%, and Russell 2000 -3.15%.

Recent Economic Data

  • The US trade deficit expanded slightly in September compared to August. In September, the trade deficit was $61.5 billion, wider than the $58.7 billion deficit in August. The wider deficit was due to exports rising $5.7 billion, or 2.2%, to $261.1 billion while imports rose a larger $8.6 billion, or 2.7%, to $322.7 billion. The larger deficit will create a slight downward revision to third quarter GDP (higher exports increases GDP while higher imports lowers GDP). A different way to look at the data is the total volume of trade, an indicator of overall economic activity globally, and overall trade volume increased a very strong $14.3 billion in the month, or 2.5%. However, the volume of trade year-to-date is $102.1 billion lower than last year’s period, all due to lower imports which is a negative sign for domestic demand.
  • The number of unemployment claims filed the week ended November 4 was 217,000, a decline of 3,000 from the week prior, with the four-week average up slightly to 212,250. Continuing claims were 1.834 million, up 22,000 from the prior week for the highest since April. There has been a slight uptick in unemployment claims over the past several weeks, but that can be attributed to the auto strikes in Michigan as the state saw a significant increase over the timeframe.
  • According to the University of Michigan’s most recent consumer sentiment survey, consumers’ feelings on the economy and inflation deteriorated further in November. The consumer sentiment index was 60.4 in the latest reading, down from 63.8 last month for the fourth consecutive decline and the lowest since May. The current conditions index fell to 65.7, about 6 points below expectations, while the expectations index fell about 5 points to 56.9, both the weakest levels since May. The one-year inflation expectation increased to the highest level since April at 4.4%, up from 4.2% last month. It was just September that one-year inflation expectation was 3.2%. The longer-term inflation expectation (5-10 years) was 3.2% for the highest level since March 2011.

Company News

  • WeWork, the provider of coworking spaces, announced that it has filed for Chapter 11 bankruptcy protection. It said it has entered into a restructuring support agreement with about 92% of its secured note holders. The company made headlines before and during the pandemic on its failed efforts in its initial attempts to go public due to its disclosures and corporate governance, and its valuation at one point of at least $47 billion.
  • Nvidia is reportedly getting ready to announce three new chips that will be eligible to export to China, weeks after the US restricted chipmakers from selling high-end AI chips to Chinese companies. Reports say Nvidia has held about a 90% market share of China’s AI chip market, estimated to be around $7 billion.
  • After activist pressure and part of a strategic review of the company, Disney is exploring alternatives with its linear TV assets. Latest reports from the WSJ say the company is weighing the potential sale of some TV networks and adding some into the A&E Network, which is a joint venture Disney has with Hearst. Disney has identified ABC, FX, and the Disney Channel as the channels that are most valuable to the company, while channels like Freeform and National Geographic are considered “less critical.”
  • The CEO of OpenAI, the company behind the popular artificial intelligence chatbot ChatGPT in partnership with Microsoft, said the company is planning to secure additional financing from Microsoft, according to the Financial Times. About a month ago reports said the company was looking to sell existing shares that would value it between $80 and $90 billion. Reports say Microsoft had already invested around $10 billion in the company. The CEO said the partnership is working well but artificial training intelligence expenses are huge.

Other News

  • The Senior Loan Officer Opinion Survey on Bank Lending Practices noted that over the past three months banks reported tighter standards and weaker demand for commercial and industrial loans to firms of all sizes. Regarding households, banks reported tightened lending standards for all categories of real estate loans (with the exception of government mortgage, which was unchanged), a significant number of banks said they tightened lending standards for credit card and other consumer loans, and a moderate share of banks tightened for auto loans. A special question of the survey said banks were less likely to approve credit card and auto loans by those with a lower credit score (600s range) and about as likely to approve the same loans for those above a 720 score. Another question asked the reason for the changes and the most frequent response was less favorable and more uncertain economic outlook, reduced tolerance for risk, deterioration in credit quality of loans and collateral values, and concerns on funding costs.
  • South Korea said it was banning short selling until June 2024 with the Financial Services Commission saying the reason is “aimed at fundamentally easing ‘the tilted playing field’ between institutional and retail investors.” It claimed that because of uncertain market conditions, major foreign investment banks have engaged in unfair practices and trades.
  • Saudi Arabia and Russia said they will continue their previous commitment of oil production cuts in the latest monthly decision. Saudis have cut production by 1 million barrels/day, going into effect in July and extended until the end of the year, while Russia’s cuts were 300k bbl/day.
  • Central bank news:
  • The Reserve Bank of Australia came out with its policy decision in which the street is calling a “dovish rate hike”. It raised rates 25 bps to 4.35% after four consecutive meetings of no change. Commentary was vague but said whether further tightening is needed will depend on the data and assessment of risk.
  • Fed Governor Waller said the 4.9% GDP growth in the third quarter was a “blowout” and is watching the stronger economic data closely, and also called October’s move higher in the 10-year Treasury yield an “earthquake.”
  • Dallas Fed President Lori Logan said inflation is still too high, but the question for her is whether financial conditions are “sufficiently restrictive” to get inflation back to 2%. She said inflation is trending to 3% instead of 2% but expects to continue to see tight financial conditions.
  • Richmond Fed President Tom Barkin said the Fed is not done in bringing inflation to target, adding an economic slowdown is likely required to achieve this. With financial conditions tighter and the level of interest rates close to restrictive he said the Fed has time to “reconcile competing narratives” to test different views on the trajectory of inflation. He added whether more needs to be done by the Fed to generate a further slowdown remains to be seen.
  • In an International Monetary Fund panel titled “Monetary Policy Challenges in a Global Economy” Fed Chairman Powell spoke on inflation and monetary policy. Powell talked about how inflation has given us a few “head fakes” already, where it appears it was coming down quickly only to later stall or even move higher. He added “we are not confident” it has made it to a point where policy is on path to bring inflation to its target, adding the Fed will not hesitate to tighten policy further. Powell said the Fed will move carefully, and that will allow it to avoid being misled by a few good months of data. Near the end of his speech, he said the current policy rate is probably at a significantly restrictive rate.

Did You Know…?

Consumer Credit

Consumer credit According to the New York Fed’s quarterly consumer credit report, the level of household debt increased $786 billion from Q3 2022, or 4.8%, to a new record of $17.29 trillion. This is now $3.1 trillion, or 22%, above pre-pandemic levels. Credit card balances are increasing more than any other type of debt. In the quarter, credit card debt increased $48 billion, or 4.7%, to a record $1.08 trillion. Delinquency rates increased 0.4% in the quarter to 3.0%, and increased for all debt except student loans. Credit cards saw the largest increase, rising 0.8% in the quarter, and show the highest delinquency rates at 8% in Q3.

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?
  • You can compare plans online with the “Plan Finder” tool at medicare.gov
  • You can input medications and it will show estimated costs, including copayments and coinsurance.

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 real life work experience from the finance industry? 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 highlight for this week will be inflation data with the most anticipated data release coming Tuesday with the release of October’s consumer price index. Other data includes the producer price index, the Empire State Manufacturing survey index, and retail sales on Wednesday. After several stronger than expected months of growth in retail sales, economist estimate a small decline in October. The Philly Fed Manufacturing survey index, import and export prices, industrial production, and jobless claims are released Thursday and the week wraps up with October housing starts and permits on Friday. There will be many Fed policymakers speaking again this week – markets will pay most attention to any commentary on the latest inflation data. The focus of earnings season will shift to retailers this week and next with several big box retailers providing their latest quarterly results, and most likely commentary on expectations for the holiday shopping period, which will be closely followed given worries about a possible slowdown in consumer spending and economic activity. Retailers this week include Home Depot on Tuesday, Target on Wednesday, and Walmart and Macy’s on Thursday. Other notable reports will come from Cisco, Palo Alto Networks, Alibaba, Applied Materials, TJX, and BJ’s Wholesale Club. Political headlines will pick up as well with Congress approaching another deadline to avoid a government shutdown at the end of the week, after passing a short-term resolution two months ago. In addition, President Biden is scheduled to meet with President Xi of China on Wednesday ahead of the Asia-Pacific Economic Cooperation summit in San Francisco where they are expected to discuss maintaining open lines of communication, competition, working together where interests align, and global issues.