THE WELL-TH NOTES

By Hightower St. Louis on October 19, 2023

Weekly data-driven insights on the markets and economy

Third Week of October 2023

Turbulent Times

This week, the S&P 500 has trended downward due to uncertainty around interest rates and the Middle East and mixed earnings reports, despite broadening of the market and red-hot retail sales. While the S&P 500 is up 15.4% year-to-date,[i] much of this growth is led by the top 7 megacaps, which have risen more than 50% this year. The remaining 493 have risen only 5% through the year.[ii]

Up and Down

The resilience in the economy also caused U.S. Treasury yields to spike, pressuring megacaps Apple, Microsoft, Alphabet and Amazon. The 10-year saw a 4.8% increase in yields.[iii] The 30-year yield topped 5% this month for the first time since 2007 and has jumped up and down at least 2% over the last five trading days.[iv] This highlights the uncertainty in the bond market as investors watch Fed policy, the supply of Treasury debt and potential for further conflict in the Middle East.

Crude and Unusual

Brent crude futures rose 25 cents to $89.90/barrel and U.S. West Texas Intermediate crude (WTI) was unchanged at $86.66 on Tuesday. After fears that the Israel-Hamas conflict could expand into the Middle East last week, the global benchmark for oil gained 7.5% in it’s largest weekly gain since February.[v] President Biden’s visit to Israel on Wednesday intends to prevent a regional conflict, after OPEC-member Iran hinted at involvement. Prices fluctuate as investors watch how Biden’s visit unfolds.

Prime Time

Amazon’s Prime Big Deal Days outpaced last year’s event, with more than 150 million items ordered in 48 hours.[vi] Other retailers are also beginning to hold discount events in advance of the holiday shopping season to extend demand. Adobe forecasts that online holiday spending will reach $221.8 billion, growing 4.8% this year.[vii] Recent retail sales, up 0.7% in September compared to August and 3.8% year over year,[viii] point to a strong consumer.

Back To School

More than 20 million federal student loan borrowers return to repayment on October 1. Less than 1.5% (or 420,000) of borrowers’ monthly payments had been miscalculated as loan servicers for borrowers transferred into President Biden’s SAVE repayment plan, which bases borrowers’ monthly payments on income and family size, hit a snag. Borrowers have since been notified about their correct payment amount and will be offered refunds.[ix] The Federal Reserve Bank of New York said in a report last Wednesday it expects only a modest consumer impact from resumption of student loan repayments.[x]

Housing Needs a Locksmith

Mortgage rates rose for the fifth consecutive week as market and geopolitical uncertainty continued. The 30-year rate is now 7.57%.[xi] Demand continues to exceed homes for sale, as homeowners with lower rates “locked in” are unwilling to sell. Existing home sales decreased 0.7% in September.[xii] The rise in rates, elevated prices and low inventory point to a continued weak housing market for October.

The Tagalong Effect

Inflation has reached Girl Scout cookies. Prices are rising for the commercial bakeries that produce the cookies, so many Girl Scout regional councils are raising prices to cover these increased costs. $5 cookies are now $6. While this 20% increase may feel jarring to some, the price of store-bought cookies has also risen 23% in the last two years. Some of the first Girl Scout councils to raise prices in California saw little to no drop in sales.[xiii] Thin Mints are proving to be worth the extra $1.

Crowning Toy Royalty

Five toys are regular finalists, but never make the cut to be inducted into the National Toy Hall of Fame – until now. The National Toy Hall of Fame is letting fans decide which of these five toys will finally be crowned toy royalty: the pogo stick, the Fisher-Price Corn Popper, My Little Pony, PEZ dispensers and Transformers. One of these five will be inducted along with three toys chosen by a panel of historians, educators and other experts.[xiv] Which toy would you vote for?

[i] Factset, total return as of October 16, 2023.

[ii] De Mott, Filip, “CHART OF THE DAY: The S&P 500’s top 7 stocks have soared more than 50% in 2023, while everything else is ‘basically flat’,” Markets Insider, September 25, 2023, https://markets.businessinsider.com/news/stocks/sp500-spx-magnificent-7-tech-stocks-artificial-intelligence-nvda-tsla-2023-9. Accessed October 18, 2023.

[iii] Biswas, Ankika and Shashwat Chauhan, “Wall Street advances on upbeat earnings; higher yields pressure megacaps,” Reuters, October 17, 2023, https://www.reuters.com/markets/us/futures-slip-middle-east-conflict-weighs-bank-results-data-focus-2023-10-17/. Accessed October 17, 2023.

[iv] Stanton, Elizabeth and Garfield Reynolds, “Long-End Treasuries Hit by Wildest Swings Since 2020 Pandemic,” Bloomberg, October 16, 2023, https://www.bloomberg.com/news/articles/2023-10-17/long-end-treasuries-fluctuate-by-most-since-2020-pandemic-onset?embedded-checkout=true. Accessed October 17, 2023.

[v] Jao, Nicole, “Oil prices edge higher ahead of Biden Middle East trip,” Reuters, October 17, 2023, https://www.reuters.com/markets/commodities/oil-steadies-hopes-venezuela-sanctions-being-eased-2023-10-17/#:~:text=NEW%20YORK%2C%20Oct%2017%20(Reuters,the%20Middle%20East%20from%20widening.. Accessed October 18, 2023.

[vi] Palmer, Annie, “Amazon says October Prime Day outpaced last year’s event,” CNBC, October 12, 2023, https://www.cnbc.com/2023/10/12/amazon-says-october-prime-day-outpaces-last-years-event.html. Accessed October 17, 2023.

[vii] Adobe, “Adobe Forecasts $221.8 Billion U.S. Holiday Season Online, Cyber Monday To Top $12 Billion,” Adobe, October 5, 2023, https://news.adobe.com/news/news-details/2023/Adobe-Forecasts-221.8-Billion-U.S.-Holiday-Season-Online-Cyber-Monday-To-Top-12-Billion-default.aspx/default.aspx. Accessed October 17, 2023.

[viii] E. Kohan, Shelley, “Retail Sales Up 0.7% As Retailers Prepare For Holidays,” Forbes, October 18, 2023. https://www.forbes.com/sites/shelleykohan/2023/10/18/retail-sales-up-07-as-retailers-prepare-for-holidays/?sh=2cc2d8944637. Accessed October 18, 2023.

[ix] Siegel Bernard, Tara, “More Than 400,000 Student Loan Borrowers Had Wrong Monthly Payments,” The New York Times, October 16, 2023, https://www.nytimes.com/2023/10/16/your-money/student-loans-save-mistakes.html. Accessed October 18, 2023.

[x] S. Derby, Michael, “NY Fed finds modest economic impact from restart of student loan payments,” Reuters, October 18, 2023, https://www.reuters.com/markets/us/ny-fed-finds-modest-economic-impact-restart-student-loan-payments-2023-10-18/. Accessed October 18, 2023.

[xi] “Mortgage Rates Continue to Climb,” Freddie Mac, October 12, 2023, https://www.freddiemac.com/pmms. Accessed October 18, 0223.

[xii] Rothstein, Robin, “Housing Market Predictions For 2023: When Will Home Prices Be Affordable Again?” Forbes, October 12, 2023, https://www.forbes.com/advisor/mortgages/real-estate/housing-market-predictions/. Accessed October 18, 2023.

[xiii] Horsely, Scott, “Inflation has a new victim: Girl Scout cookies,” NPR, October 14, 2023, https://www.npr.org/2023/10/14/1205699066/inflation-economy-girl-scout-cookies?_hsenc=p2ANqtz-8shS0utj01Lb3DI3n7qv0hBhq0Iin2BRCU0xi2aSvLe-VunUquswBpY-YhSZ77-vC3A8dV-EutdQrOMS5305tXnZXx04BE1V9HuVRteLWrywQCkPs&_hsmi=278426464. Accessed October 18, 2023.

[xiv] Thompson, Carolyn, “These five toys are regular finalists for Hall of Fame honors. Now fans can vote one in,” AP News, October 17, 2023, https://apnews.com/article/toy-hall-of-fame-pez-pogo-stick-98b0f5b1a18b91b0835273610fcdfd22. Accessed October 18, 2023.