U.S. stocks have jumped back near to their summertime highs, a big rebound as investors enter the holiday season with Black Friday just days away.<\/p>\n
The shopping frenzy expected on Friday, the day after Thanksgiving, kicks off a spending spree for the holidays that could help buoy stocks after their surge this month.<\/p>\n
\u201cWith consumers employed and feeling flush, the holiday selling season is starting off well,\u201d said analysts at Yardeni Research, in a note dated Nov. 16. \u201cWhile high interest rates may restrain spending on expensive goods requiring financing, October\u2019s sales levels represent a solid launch to the holiday shopping season.\u201d<\/p>\n
But some investors worry the run-up in U.S. stocks in November may have gone too far, with the S&P 500 index on pace for its largest monthly gain of the year after both bonds and equities rallied. The S&P 500 ended Friday 1.6% below its 2023 closing high at the end of July, surging 7.6% this month after a third straight week of gains, according to Dow Jones Market Data.\u00a0<\/p>\n
\u201cThat is overdone,\u201d said Bob Elliott, co-founder and chief executive officer of investment firm Unlimited Funds, in a phone interview. \u201cFinancial conditions have meaningfully eased.\u201d<\/p>\n
The easing of financial conditions follows the U.S. Treasury Department\u2019s quarterly refunding announcement at the start of November, which showed that it will issue less long-term Treasury bonds than the market expected, said Elliott. That relieved investor concerns over appetite for long duration U.S. government debt amid the deluge of Treasurys hitting the market.\u00a0<\/p>\n
Long-term Treasury bond prices rallied as a result, sending yields lower. And that, in turn, has helped push stock prices higher.<\/p>\n
\u201cThere was a policy easing by the Treasury,\u201d said Elliott. \u201cThat\u2019s stimulative to the real economy and basically kind of sets us back in the tightening cycle a few steps.\u201d\u00a0<\/p>\n
The Federal Reserve has tightened its monetary policy with interest-rate hikes to slow the economy in a bid to bring down inflation that remains above its 2% target. Inflation was flat in October, as measured by the consumer-price index, falling to 3.2% on a year-over-year basis.\u00a0That\u2019s down from 3.7% in September and as high as 9.1% in June 2022.<\/p>\n
Investors were encouraged. Treasury yields tumbled after the consumer-price-index report was released on Nov. 14, steepening their drop this month, while stocks climbed.\u00a0<\/p>\n
Stocks and prices of long-term Treasury bonds have been rallying in tandem in November.\u00a0<\/p>\n
The Vanguard Total Stock Market ETF The yield on the 10 year-Treasury note Don McCree, vice chairman of Citizens Financial Group, told MarketWatch in an interview that the recent drop in Treasury yields prompted him to advise the bank\u2019s corporate clients to take advantage of the decline in borrowing costs as an opportunity to access the debt markets if they have refinancing needs in the next three years.\u00a0<\/p>\n McCree, who is head of commercial banking at Citizens, also said that his corporate clients are keeping an eye on consumer spending, particularly around the holiday shopping season.\u00a0<\/p>\n \u201cIn recent days, Home Depot Consumers\u2019 \u201cexcess savings were extremely important in 2022 because real disposable personal income declined sharply in 2022, partly because of the inflation surge,\u201d Jan Hatzius, chief economist at Goldman Sachs Group, said Nov. 16 during an online media briefing on the 2024 outlook of the bank\u2019s global investment research group.<\/p>\n While excess savings are now\u00a0 \u201csmaller,\u201d real disposable income is growing at \u201ca very healthy pace of about 4% in 2023,\u201d said Hatzius. \u201cWe\u2019re still expecting something close to 3% in 2024, which should be sufficient to keep consumption growing at, again, an okay pace, 2% or so.\u201d<\/p>\n U.S. retail sales dipped 0.1% in October, falling for the first time in seven months, although not all areas fell, according to Yardeni analysts. \u201cThe latest data show consumers continued to spend at clips higher than a year ago in restaurants,\u201d they said.\u00a0<\/p>\n Read:<\/strong> Credit-card, auto-loan \u2018stress\u2019 rises as U.S. consumers fall behind on payments<\/p>\n Meanwhile, the U.S. unemployment rate remains low, at 3.9% in October. <\/p>\n \u201cWe\u2019re looking for no material increase in the unemployment rate\u201d next year and place just a 15% probability of a recession over the next 12 months, said Hatzius, during the media briefing.\u00a0<\/p>\n When it comes to the consumer, \u201cit\u2019s all about employment,\u201d according to Elliott. \u201cIncome growth is quite a bit stronger than price growth,\u201d he said, improving \u201cthe real spending power for households.\u201d\u00a0<\/p>\n In its inflation battle, the central bank has lifted its benchmark rate to a 22-year high of 5.25% to 5.5%, with Fed Chair Jerome Powell recently describing the central bank\u2019s monetary policy as \u201crestrictive.\u201d\u00a0<\/p>\n But \u201cif the economy is fine\u201d at these rate levels, then \u201cby definition\u201d they\u2019re not restrictive and rates may remain higher for longer, said Elliott. <\/p>\n \u201cThe macroeconomy is super slow-moving,\u201d and asset prices may need to fall for the Fed\u2019s tightening cycle to move faster, he said.<\/p>\n U.S. stocks closed higher Friday, with the Dow Jones Industrial Average Read:<\/strong> Walmart CEO expects to see \u2018period of deflation\u2019 in the coming months<\/p>\n \u201cNow may be time to seek exposure to quality stocks,\u201d amid signs of U.S. growth softening, according to a UBS research note Friday.\u00a0<\/p>\n \u201cQuality stocks have historically outperformed in the late stages of the business cycle, including in periods of economic contraction, which should offer portfolio protection if the economy slows more than we expect,\u201d Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, said in the note. \u201cThe quality tilt also aligns with our preference for U.S. technology companies.\u201d<\/p>\n Quality companies, which tend to be inherently defensive with stronger balance sheets and consistent cash flow, may also benefit from \u201cpricing power,\u201d in the view of Tom Hancock, head of the focused equity team at legendary investor Jeremy Grantham\u2019s GMO.\u00a0<\/p>\n
\n VTI,<\/span>
\n which tracks U.S. equities, and Vanguard Long-Term Treasury ETF
\n VGLT
\n have each surged more than 7% this month through Friday, according to FactSet data.\u00a0<\/p>\n
\n BX:TMUBMUSD10Y
\n was little changed on Friday, at 4.441%, but was down about 43 basis points so far this month based on 3 p.m. Eastern Time levels, according to Dow Jones Market Data.\u00a0<\/p>\n
\n HD,
\n
\n and Target
\n TGT,
\n
\n reported declining revenue but results that beat analysts\u2019 expectations, while TJX
\n TJX,
\n
\n \u2014the strongest of the three retailers\u2014reported a strong increase in quarterly results and signaled optimism about the holiday selling season,\u201d according to the Yardeni Research note.<\/p>\nConsumer savings<\/h4>\n
Restrictive?<\/h4>\n
\n DJIA,<\/span>
\n S&P 500
\n SPX
\n and Nasdaq Composite
\n COMP
\n each rising for a third straight week. The S&P 500 surged 9.6% over the past three weeks, its largest three-week percentage gain since June 2020, according to Dow Jones Market Data.<\/p>\nTime to buy quality stocks?<\/strong><\/h4>\n