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Monthly Economic and Investment Outlook

November 2023 Economic and Investment Outlook

United States

stock market bull statue
  • Q3 real GDP growth increased at a seasonally adjusted annual rate of 4.9%, more than twice the 2.1% pace in Q2. Half of the Q3 growth came from consumer spending which accounted for 2.7 percentage points (ppts) of the 4.9% total. Growth in Q4 will most likely slow, pressured by a reduction in business inventory stockpiling and government spending. In addition, the excess savings built up during the pandemic, which acted as a key consumer spending resource, is vanishing.
  • The headline Personal Consumption Expenditure (PCE) price index edged 0.4% higher m/m in September and 3.4% y/y. The core PCE price index, excluding food and energy, rose 0.3% m/m and 3.7% y/y.
  • The ISM Manufacturing PMI fell 2.3 ppts in October to 46.7%, the 12the consecutive month in contractionary territory.
  • The Employment Cost Index (ECI), which measures changes in total compensation costs for civilian workers, rose 1.1% in Q3 and 4.3% y/y, down from 4.5% y/y in Q2. Annual wage and salary growth was unchanged at 4.6%. Benefit costs were up 4.1% y/y, down from a 4.2% gain in Q2.

    US Employment Cost Index 
    Source: Oxford Economics/Haver Analytics

  • Job growth is trending lower with revisions to the downside. In October, payrolls rose 150k, with the previous two-month’s jobs data revised down by 101k. The unemployment rate edged up to 3.9%, as the number of unemployed increased by 146k while the labor force decreased by 201k. The labor force participation rate fell slightly to 62.7%.

    US Nonfarm Payroll Employment
    Source: Oxford Economics/Haver Analytics

  • The National Association of Realtors’ housing affordability index in August, based on mortgage rate, family incomes, and single-family existing home prices, showed housing affordability at its worst levels since 1985.

    Housing Affordability Composite Index
    Source: Strategas Securities - Quantitative Research


  • The European Central Bank (ECB) ended its long streak of 10 consecutive interest-rate hikes in October. The interest rates on the main refinancing operations, marginal lending facility, and deposit facility all were maintained at 4.50%, 4.75%, and 4.00%, respectively. The ECB believes that current interest-rate levels are “sufficiently restrictive” and pledges to keep them here “as long as necessary.”
  • The Eurozone’s headline CPI rate moderated to 2.9% y/y in October from 4.3% the previous month, while the core rate fell but remained elevated at 4.2%.
  • The Eurozone economy is in a much weaker position than the U.S. economy. Over the past 12 months, the U.S. economy has expanded by just under 3% while the Eurozone grew by a paltry 0.1%.

    US Eurozone GDP

  • The Eurozone Manufacturing PMI in October confirms a weak start to Q4 with the index at 43.1%, a three-month low. Economic activity is declining as new orders are falling at a record pace. As a result, factory employment is suffering as workforce reductions increase. The unemployment rate in Germany rose slightly to 5.8% in October from 5.7% the previous month.
  • The Bank of England’s (BoE) Monetary Policy Committee (MPC) decided to keep the key bank rate at 5.25% in November, despite headline CPI up 6.7% y/y in September.
  • China’s economy is off to a rough start in Q4. The Manufacturing PMI from Caixin (pronounced “sigh sheen”), the statistics bureau which combines data from factories and the service sector, fell below 50% for the first time in three months. The index fell to its lowest level this year to 49.5% in October from 50.6% in September.
  • Last month, the Bank of Japan (BOJ) held bank rates steady at minus 0.1%, but, in effect, ended its yield-curve control (YCC) policy. The YCC was previously defined at a rigid yield cap of 1%. The BOJ stated that level will now be a “reference.” The world’s 3rd largest economy is now paving the way for its first interest rate hike since 2007.
  • Should the BOJ normalize monetary policy and potentially hike interest rates, Japanese investors may find domestic bonds more attractive than U.S. Treasuries, leading to a sale of U.S. Treasuries, higher Treasury yields, and a potentially weaker U.S. dollar.

    10yr JGB and Overnight Index Swap
    Source: Oxford Economics/Haver Analytics

Fixed Income

  • At the November FOMC meeting, the Federal Reserve unanimously voted to hold the fed-funds rate steady at a 22-year high, with the target range unchanged at 5.25% to 5.5%. It was the second consecutive FOMC meeting with no change in the fed-funds rate.
  • Approximately one-third of outstanding U.S. debt matures within the next year. The marketable debt has a weighted average interest rate of 3.02%.

    US Outstanding Marketable Sovereign Debt 
    Strategas Securities, LLC - Investment Strategy

  • No one was surprised that the Fed held rates steady at the November FOMC meeting. The fed-funds futures market now expects no further rate hikes by the Fed this cycle, anticipating the Fed will start cutting rates in June of 2024.
  • According to Strategas, interest rates frequently peak during recessions, not before. Since 1945, there have been 13 recessions and in only 4 of those recessions did the 10-year Treasury peak before the recession began. On average, the 10-year Treasury rate rises about 60 basis points once the recession begins.

    Basis Point Change in the 10Yr Yield
    Strategas Securities, LLC - Investment Strategy     

Tactical Fixed Income Allocation

  • Neutral duration to the fixed income strategy’s respective benchmark as fixed income markets price in slower economic growth and lower inflation.
  • Slight overweight to short-term investment grade corporates - capture additional income with minimal incremental risk.

Equity Market

  • The first week of November marked the best week of performance for the S&P 500 in 2023. This followed its first three-month losing streak since Q1 2020.

    S&P 500 Index – Source: Wall Street Journal
    SP 500 Index

  • The Chicago Board Options Exchange (CBOE) volatility index (VIX), which measures expected S&P 500 volatility and signals the degree of uncertainty in the equity markets, fell to 14.9 recently, down from an October peak of almost 22.
  • The VIX fell in response to recently reported weaker economic data and the likelihood of no additional fed-fund rate increases. The Fed may be justified in not raising rates because of tighter financial conditions, higher bond yields, a firmer U.S. dollar, and lower stock prices (the S&P 500 was down more than 10% from July’s high through October’s low).

    CBOE Volatility Index – Source: CBOE

    CBOE Volatility Index

  • Rising interest rate environments are challenging for equity returns. From 1945–1981, the S&P 500 had a compound annual growth rate of 5.7%. As rates declined from 1982-2020, the S&P 500 had a compound annual growth rate of 11.8%.

    US 10Yr Yield Strategas
    Source: Strategas

Tactical Equity Allocation

  • Overweight to U.S. Large Cap stocks with an emphasis on equities with quality, defensive, and strong cash flow characteristics.
  • Underweight to International Developed with no exposure to Emerging Markets. Although valuations remain attractive relative to U.S. equities, these asset classes may be pressured by slowing global growth, stronger U.S. Dollar, and recessionary pressures.
  • Slight exposure to gold, to serve as a hedge, in a geopolitically tense global environment.
Notices & Disclosures
Past performance is no guarantee of future results. Products and services offered through F.N.B. Investment Advisors, Inc. are not FDIC insured; and are not insured by any Federal Government Agency, are not deposits or obligations of or guaranteed by First National Bank of Pennsylvania or its affiliates and may go down in value. The material has been extracted from various sources that F.N.B. Investment Advisors, Inc. believes reliable, but we cannot guarantee the accuracy or integrity of the material. This material is for your private information, and we are not soliciting any action based upon it. Any projections, market outlooks or estimates contained herein are forward-looking statements and are based upon certain assumptions. Other events that were not considered may occur and may significantly affect the returns or performance of these investments. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product or any non-investment related content, made reference to directly or indirectly herein will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. You should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with their investment advisor. You can review your registered investment advisors or the investment advisory firm at the SEC's Investment Adviser Public Disclosure page - icon.

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