THE WELL-TH NOTES

By Yvette Fernandez on December 21, 2023

Weekly data-driven insights on the markets and economy

Third Week of December 2023

1. Rise and Shine – The S&P 500 rose 0.59% on Tuesday, approaching its record high as the Fed’s dovish shift on rates lifted stocks. It is about 0.6% from surpassing its record close and 1% from equaling its intraday record, both set in January 2022. Specifically, the energy sector outperformed, up 1.2% as oil prices rose. The S&P 500 is up 4.4% for the month and coming off its longest weekly winning streak since 2017.[i]

2. What Goes Up… – On Wednesday, the U.S. Treasury yield hit its lowest level since July after investors assessed the Fed’s projection for three rate cuts in 2024. The 10-year yield fell 7 bps to 3.8%, the 2-year fell 9 bps to 4.3% and the 30-year fell 5 bps to 3.9%.[ii]

3. Playing Catch Up – Through last week, 65% of large-cap managers were trailing their benchmark by 6.5%, on average. While the stock market as measured by the S&P 500 has had a great year, many investors have struggled to keep pace. In the final weeks of 2023, these investors are expected to try to make up this difference by investing heavily in this year’s winning trades, like the Magnificent Seven that have risen more than 70% this year.[iii]

4. Hatz Off to the Fed – Goldman Sachs’ chief economist Jan Hatzius believes “The Great Disinflation” is under way. Global inflation continues to plummet, falling at an annualized pace of just 2.2% over the past three months, and only 1.3% in November. In the U.S., year-over-year inflation has dropped to just 3.1% in November. Hatzius predicts the Fed will make three back-to-back 25 basis point interest rate cuts in the first half of next year – probably in March, May and June – plus two additional cuts by year-end. Looking even further ahead, he expects three more rate cuts in 2025, leaving the fed funds rate between 3.25% and 3.5% by September of that year.[iv]

5. The Path Less Traveled – Recent attacks by an Iran-aligned Yemeni Houthi militant group on shipping vessels in the Suez Canal forced leading companies to reroute to the Cape of Good Hope, increasing trips from Asia to North Europe and the East Mediterranean by about 10 days. As of Tuesday, the price to ship a container from China to the Mediterranean was $2,413, having risen 44% this month due to the disruptions, after hitting a low of $1,371 earlier this year. The canal accounts for about 12% of the world’s shipping traffic.[v]

6. Broadening Horizons – Nippon Steel Corp. pays a 142% premium on U.S. Steel Corp., making it the world’s second-biggest steel producer. This $14.1 billion acquisition represents a massive jump in U.S. Steel’s share price on the last day of trading before it announced its strategic review in August. This is the biggest move by Nippon Steel to shift focus abroad as Japan’s demand dwindles. Japan’s crude steel manufacturing has been on a downward trend, with production falling to about 96 million tons in fiscal 2021 from about 122 million tons in fiscal 2007.[vi] This deal gives Nippon Steel a large foothold in America.

7. Holiday Cutbacks – Since the Covid-era pause on student loan repayment ended in October, those repaying loans are cutting back on holiday spending. In a November survey of 1,202 respondents with federal student loan debt, 76% said that the return of payments will reduce their holiday shopping budget. 54% say they will spend less on gifts for family and friends, 41% say they will have smaller holiday meals and 33% say they can’t afford to travel to see friends or family.[vii] If you’re making budget cuts this holiday season, the pressure to make the holidays perfect can feel overwhelming, but you’re not alone.

8. Three Cheers for Mummers – One of the longest-running parades, Philadelphia’s Mummers Parade, has been voted the best holiday parade by USA Today readers, beating out the annual Macy’s Thanksgiving Day Parade in New York City by two spots. The Mummers Parade is a New Year’s Day procession down the iconic Broad Street in Philly, consisting of comics, strong bands and fancy brigades. The 2024 Mummers Parade begins at 9 a.m. on Monday, January 1 – be there or be square.[viii]

[i] Min, Sarah and Samantha Subin, “Dow jumps more than 200 points for ninth winning day, S&P 500 nears record: Live updates,” CNBC, December 19, 2023, https://www.cnbc.com/2023/12/18/stock-market-today-live-updates.html. Accessed December 20, 2023.

[ii] Min, Sarah and Elliot Smith, “10-year Treasury yield hits lowest since July,” CNBC, December 20, 2023, https://www.cnbc.com/2023/12/20/treasury-yields-dip-slightly-as-fed-trajectory-remains-in-focus.html. Accessed December 20, 2023.

[iii] Udland, Myles, “The underrated tailwind that could boost stocks this year and beyond,” Yahoo!Finance, December 19, 2023, https://finance.yahoo.com/news/the-underrated-tailwind-that-could-boost-stocks-this-year-and-beyond-110008981.html. Accessed December 20, 2023.

[iv] Daniel, Will, “Goldman Sachs’ chief economist says ‘The Great Disinflation’ is under way—and he expects 3 back-to-back interest rate cuts by summer,” Fortune, December 18, 2023, https://fortune.com/2023/12/18/inflation-outlook-goldman-sachs-chief-economist-jan-hatzius-recession/. Accessed December 20, 2023.

[v] Mannes, Marie, Jonathan Saul and Lisa Beartlein, “Companies rush to avert disruption from Red Sea attacks as shipping rates rise,” Reuters, December 19, 2023, https://www.reuters.com/business/retail-consumer/electrolux-readies-alternative-routes-after-red-sea-attacks-2023-12-19/. Accessed December 20, 2023.

[vi] “Nippon Steel Says Global Push Justifies 142% US Deal Premium,” Bloomberg News, December 18, 2023, https://www.bloomberg.com/news/articles/2023-12-19/nippon-steel-justifies-huge-premium-for-us-steel-in-global-push. Accessed December 20, 2023.

[vii] Giovanetti, Erika, “Holidays on Hold: Student Loan Repayment Has Borrowers Trimming Budgets,” U.S. News, December 6, 2023, https://money.usnews.com/loans/student-loans/articles/2023-holiday-spending-student-loan-survey. Accessed December 20, 2023.

[viii] Simon, Alexandra, “Philadelphia’s Mummers Parade tops USA Today list of best holiday parades,” CBS News, December 19, 2023, https://www.cbsnews.com/philadelphia/news/philadelphias-mummers-parade-usa-today-list-best-holiday-parades/. Accessed December 20, 2023.