Our Top Market Takeaways for November 17, 2023.

November is on track to be the best month of 2023. The too-hot economy is finally showing signs of cooling and seems to be taking the edge off for investors. So far this month, the S&P 500 is up a meaningful 7.5%, bringing its year-to-date rally in touching distance of 20%. That rally has come as the yield surge loses steam. Heading into Friday, 10-year Treasury yields have almost dropped a staggering 60 basis points from their intraday highs less than a month ago, and U.S. core bonds have now totally erased all of their 2023 losses.

So, is the coast clear?

It’s probably too soon to say, but there are a number of promising signs.

Here are 3 things this week that offered more confirmation.

1. The economy is cooling but not too much.

All the reads this week seemed to strike the balance of a soft landing. The U.S. consumer spent at a slower pace in October than it did over the summer, but still showed strong demand for all things e-commerce and electronics, restaurants and grocery stores, and health and personal care products. Earnings from retail giants like Target and Walmart echoed that cooling demand, but still managed to post beats. Also, to that end, more Americans filed claims for unemployment in a sign that the super tight labor market is easing. Meanwhile, pockets of the economy that have been worse for wear over the last year, like manufacturing, showed signs of stabilizing.

2. Inflation is still coming down.

This week’s read on the all-important Consumer Price Index (CPI) showed U.S. inflation cooled in October more than expected – across all measures. Headline prices didn’t increase at all over the month (+0% month-over-month), while core CPI (stripping out volatile food and energy prices) slowed its roll (+0.2% month-over-month). That brought the year-over-year figures to +3.2% for headline and +4% for core (a two-year low!).

Under the hood, signs were even more promising. Fed Chair Powell’s “super core” measure, which looks at sticky services prices most tied to the labor market, showed a big improvement (with its biggest monthly deceleration in a year). Elsewhere, goods deflation kept going (especially for used autos), and prices at the pump weren’t as painful thanks to the latest decline in oil prices. Shelter prices, on the other hand, were still frustratingly stubborn, but the trend in lower rent prices for new leases continues to signal a cooldown will come.

Bar chart showing the contribution to year-over-year U.S. headline inflation since January 2022.

3. Fed rate hikes look finished.

With this week’s data in hand, investors priced out all chances of further Fed rate hikes. Odds for a January hike fell to virtually 0% from 30% at the start of the week. Is it mission accomplished? No, there’s still more progress to be made (core inflation at 4% is still double the Fed’s target), but it’s notable that things really seem to be moving along in the right direction.

But we acknowledge there’s been a big rally. Have you missed it?

As we gear up for the final weeks of the year, we think the key is to stay focused and keep an eye on the big picture:

Investing at highs hasn’t necessarily been a bad thing.

Stocks have rallied over 25% from their October 2022 lows. Now, there is some fear getting invested near the top of the market, even as we see a constructive backdrop ahead (as we noted the other week).

But, history shows that after gains like these, forward-looking returns for both the short and long-term investor have still been strong. Going back to 1980, after we’ve seen at least a 20% rally from the lows, stocks were higher about 16% on average a year later and positive 82% of the time. That rises to 100% of the time three years out, all while clipping about a 12% annualized return.

That’s to say, sitting on the sidelines as markets march higher can have big consequences, and means getting back in at even higher valuations.


Line chart showing the S&P 500 index and its intra-year highs since 1980.

Don’t try to time it.

We took a look at how missing the best days so far this year would have impacted returns. If you had invested in U.S. stocks and stayed fully invested, you’d be looking at a +19% return – well above the average +14% for calendar years over the last four decades. But, if you missed just the five best days out of the 221 trading days so far, your return would be cut to 8%. Miss the best 10? Your return would be negative.

But how likely would it have been to miss the best days? The problem is that the best days tend to cluster around the worst days, when investors feel the most fearful and tempted to hit “sell.” In 2023, eight of the 10 best days have occurred within two weeks of the 10 worst days.

It’s about time in the market, not timing the market.

Bar chart showing the S&P500 returns during 2023 and the impact of missing the best days.

Bonds are still at a historically attractive entry point.

With the big decline in yields over the last few weeks, we mentioned that U.S. core bonds have now erased all of their 2023 losses. But, yields are still hovering around their most elevated levels in the last decade, and even with the latest rally, the Bloomberg U.S. Aggregate Bond Index is still down about 15% from its all-time highs. In other words, this is still the biggest dip in core bonds that investors have had the opportunity to buy over the last 40+ years.

But while we believe bonds stand to offer better potential for income and diversification this cycle than the last one (which was defined by an era of ultra-low rates), yields may not stay as high as they are today forever. We know from the past that when the Fed finishes hiking, rates tend to fall pretty quickly. The last few weeks is case in point.

Line chart showing the percent change of Bloomberg U.S. Aggregate Index from prior all-time high.

In all, we believe it’s a good time to be a multi-asset investor. With the final weeks of the year upon us, now is a good time to reflect: What is the purpose of your wealth? Does your portfolio reflect that? The things we want to do with money – our goals – are at the root of why we invest in the first place.

Your J.P. Morgan advisor is here to ensure your portfolio achieves the intent of your wealth.

All market and economic data as of 11/17/2023 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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Bonds are subject to interest rate risk, credit and default risk of the issuer. Bond prices generally fall when interest rates rise.​

Index definitions:

Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases.

The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.

The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.

The Russell 2000 Index measures small company stock market performance. The index does not include fees or expenses.

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