The Dow (+0.1%), NASDAQ (-1.5%), and S&P 500 (-0.6%) ended the week mixed but leaning toward slightly negative territory. Conversely, taxable bonds gained about 0.5% and tax-free municipal bonds gained a whopping 2% last week. One week is certainly not a trend, but I sure hope that municipal bonds have finally found their footing and will emerge from over sold conditions.
Economic data last week was also mixed. Retail sales rose by 1.3% over September, suggesting the consumer remains strong, which represents about 70% of the US economy. Further, the Producer Price Index (PPI – a measure of inflation) gained 8%, down from 8.4% in September, suggesting that inflation remains high, but is showing signs of easing. The real estate market data was very weak, as housing permits dropped 10.1% from last year, and existing home sales fell 5.9% from September and 28.4% from a year ago. The rate-sensitive housing market is typically one of the first to be impacted by Fed rate hikes. Also, the Treasury yield curve further inverted last week, which has historically been a very accurate predictor of forthcoming recessions.
On that subject, Leading economic indicators (LEIs) were reported for October, which are a great forecaster of things to come. See the chart below. Only 3 of the 10 components were positive, with the overall data in negative territory for the 4th consecutive month. As evidenced by the chart, LEIs are a great predictor of forthcoming recessions, which are often accompanied by a falling stock market. Of course, these only represent one of many data points that are considered when evaluating the economic and market conditions, but here is where a picture is worth a thousand words.
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