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Thoughts From Last Week
Markets should continue to find support over the near-term; however, as we move deeper into 2024, the path forward for markets may be bumpier.
Last week’s retail sales report surprised to the upside, with total retail sales increasing 0.3% m/m on a seasonally adjusted basis in November. Excluding auto and gas, retail sales increased 0.6% m/m, up from 0.1% growth in October. Sales at gasoline stations decreased 2.9% due to falling energy prices. Auto sales rebounded 0.5% after falling 1.1% the prior month. Elsewhere in the report, sales in food services, furniture, health & personal care, and sporting goods all increased, while sales in electronics & appliances and building materials both decreased, demonstrating consumers’ continued preference for services. Importantly, sales in the control group, which includes the categories used to calculate GDP, increased 0.4% in November, above expectations and up from a flat reading in October. As a result, GDP estimates for Q4 were revised upwards. The Atlanta Fed’s GDPNow model is currently projecting real GDP to grow 2.6% q/q in 4Q23, up from its estimate of 1.2% a week prior. In addition, healthy retail sales data along with a favorable headline CPI reading, a cooler than expected PPI report, and the FOMC’s dovish pivot should similarly augur well for profits in Q4. Moderate CPI and PPI and the prospect of lower rates next year should support margins, while solid retail sales may defy companies’ gloomy expectations for consumer demand noted in 3Q earnings calls.
The slew of favorable data and a dovish FOMC meeting also led markets to rally last week, as investors become increasingly hopeful of a “soft landing.” Looking ahead, markets should continue to find support over the near term; however, as we move deeper into 2024, the path forward for markets may be bumpier, particularly as economic growth slows to below trend and inflation remains above 2%.