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Eight in a Row
The major U.S. stock indexes couldn’t match the previous week’s strong results, but their modest gains were sufficient to deliver the market’s eighth positive week in a row. For the S&P 500, it was the longest such streak since November 2017; the index finished on Friday just 0.9% below its record closing high of January 3, 2022.
The U.S. Federal Reserve’s preferred gauge for tracking inflation posted a negative month-to-month reading for the first time since April 2020, putting inflation closer to the Fed’s 2.0% long-term target rate. On an annual basis, prices including the volatile food and energy categories rose 2.6% in November from the same month a year earlier; relative to October, the Personal Consumption Expenditures Price Index slipped 0.1%.
U.S. small-cap stocks outpaced their large-cap peers by a wide margin for the second week in a row, propelling a small-cap benchmark, the Russell 2000 Index, to a weekly gain of almost 3%. Although the index lags its large-cap peers year-to-date, the Russell 2000 has surged more than 24% since a recent low on October 27.
After four consecutive months of declines, a survey of U.S. consumers recorded a strong rebound in sentiment about the economy. The University of Michigan said its December sentiment reading rose to 69.7 from 61.3 in the previous month as consumers reported greater optimism that inflation will ease.
The U.S. government’s final estimate of third-quarter economic growth was scaled back slightly, but still indicated robust expansion. GDP for third quarter came in at an annual rate of 4.9%, versus the 5.2% figure reported in an estimate made a month earlier. The final growth rate was the fastest in nearly two years.
Analysts are expecting that fourth-quarter earnings growth will decrease modestly from the third-quarter numbers reported in the earnings season that concluded in November. As of December 18, analysts expected S&P 500 companies to report average earnings growth of 2.4% for the fourth quarter, down from the third quarter’s 4.9% figure, according to FactSet. Overall, full-year earnings growth in 2023 is expected to rise 0.6% from 2022.
U.S. companies bought back shares at a slightly faster pace in 2023’s third quarter than they did in the second quarter. Share repurchases by companies in the S&P 500 totaled nearly $186 billion, up 6% from the prior quarter’s $175 billion, according to S&P Dow Jones Indices. Relative to the third quarter of 2022, buybacks were down 12%.
The final week of 2023 will be a light one in terms of economic reports. However, a report on home prices will be released on Tuesday, followed by Thursday’s releases on pending home sales and unemployment claims. In the first week of 2024, watch for the government’s monthly employment report to come out on Friday, January 5.
Source: John Hancock Investment Management
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