To my clients:
It was a mixed week for North American stock markets with the Canadian TSX finishing down 0.6%; the U.S. Dow Jones Index finishing flat at -.01% (note the extra zero) ; and the U.S. S&P 00 finishing up 0.2%.
The case for an economic “soft landing” grows. In the past week, we had the following major data points:
- The ISM Manufacturing Index MISSED and contracted coming in at 46.7 vs expectations for 47.6
- The ISM Non-Manufacturing Index (aka Services) BEAT and expanded coming in at 52.7 vs the prior month reading of 51.8 and expectations of 52.0
- JOLTS Job Openings MISSED coming in at a 2.5 year low of 8.733 million
- U.S. Employment BEAT showing 199,000 new jobs created in November vs expectations for 180k and the prior month reading of 150k
The key message to be taken from the above big data releases is that data is coming in neither too hot nor too cold. Some suggest the data may even be of the “Goldilocks” variety. “Goldilocks” claims are likely premature, but certainly the economy is not (yet at least) falling off a proverbial cliff, and the possibility of the Fed conquering inflation without triggering recession grows. Next week’s inflation report will be key. If inflation continues to moderate as I’d expect (in fact, for the first time since April of 2021, the possibility exists that year-over -year inflation may come in with a 2 as the first digit!), then the pressure on the Fed to CUT rates will grow. Cutting rates early in 2024 would further support the economy and might even usher in a new growth phase. And the good thing at this juncture is that when the Fed starts cutting rates to support the economy, it will not have to cut to near zero as it has for much of the past two decades. It now has the leeway to make TEN quarter-percent cuts and still find itself with interest rates at a roughly neutral 3% level. That’s a good thing.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
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