Opening Market Update

Yielding Ground: Treasuries, Stocks Get Boost from Dovish Fed Talk, Mixed GDP Data

The second government estimate of Q3 Gross Domestic Product (GDP) showed even more economic vigor that quarter with an estimated annualized growth of 5.2%.

Published as of: November 29, 2023, 9:40 a.m. ET

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(Wednesday market open) Investors awoke Wednesday to the lowest Treasury yields in more than two months thanks in part to dovish words from a Federal Reserve hawk. Major indexes built on Tuesday's gains in premarket trading, but action could be subdued today ahead of tomorrow's inflation reading.

Nearly 24 hours later, Treasuries and stocks are still getting a boost and futures trading built in higher odds of a spring rate cut after Fed Governor Christopher Waller suggested the central bank is "well positioned" to push inflation to a 2% target. Like many of his Fed cohorts, Waller's been hawkish over the last year, so hearing this from him packed an extra punch. The U.S. dollar backtracked after his remarks, and now trades at levels last seen in mid-August. A softer dollar could provide more of a tailwind for stocks.

The Treasury market then turned mixed in the hour ahead of the opening bell as investors digested fresh Q3 Gross Domestic Product (GDP) estimates from the government. A stronger-than-expected headline number in the report contrasted with lower-than-expected consumer spending (see more below).

Federal Reserve activity culminates this week with remarks Friday from Fed Chairman Jerome Powell, likely his last public words before the December 12-13 Federal Open Market Committee (FOMC) meeting. One thing he won't be able to comment on that day is the November Nonfarm Payrolls report, which normally comes out the first Friday of every month. It won't be released until the following Friday.

It's unclear if Powell will say anything market-moving, but for now, stocks and Treasuries are doing pretty much what they did a year ago, building in hopes for rate cuts that may take a while to come to fruition.

Semiconductor and transportation shares were among the weakest performers Tuesday, and regional banks were also under pressure. Small cap stocks lagged. Retailers and utilities were firm. Over the last month, growth sectors like info tech, consumer discretionary, communication services, and financials outpaced the S&P 500® Index (SPX), which is up 10.6% over that period. Health care and energy brought up the rear. 

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

Morning rush

  • The 10-year Treasury note yield (TNX) dropped 4 basis points to 4.29%, the lowest since mid-September.
  • The U.S. Dollar Index ($DXY) fell to 102.81, close to a three-month low.
  • Cboe Volatility Index® (VIX) futures stayed near three-year lows at 12.59.
  • WTI Crude Oil (/CL) popped 1.75% to $77.76 per barrel ahead of tomorrow's OPEC meeting.

Just in

The second government estimate of Q3 Gross Domestic Product (GDP) showed even more economic vigor that quarter with an estimated annualized growth of 5.2%. That's up from the first estimate of 4.9%. This is a backwards-looking indicator and may not have much impact on today's trading, but it's interesting that the number went up even though the government downwardly revised consumer spending.

"Personal consumption was revised down to 3.6%, likely one of the more market moving aspects of the report because all eyes are on the consumer," says Collin Martin, a director of fixed income strategy at the Schwab Center for Financial Research.

The GDP price deflator, which measures prices of goods and services across the economy, rose 3.6%, a bit less than analysts had expected. However, tomorrow's PCE prices are a more important inflation indicator, Schwab's Martin added. 

What to watch

Get a good night's sleep because tomorrow morning is going to be a doozy for data.

An hour before the open Thursday, we'll get October Personal Income, Personal Spending, and Personal Consumption Expenditures (PCE) prices—the Fed's preferred inflation gauge—and weekly Initial Jobless Claims.

Here is PCE consensus from analysts, according to Trading Economics:

  • October PCE prices (monthly): +0.1%, versus +0.4% in September
  • October core PCE prices (monthly): +0.2%, versus +0.3% in September
  • October PCE prices (annual): +3%, versus +3.4% in September
  • October core PCE prices (annual): +3.5%, versus +3.7% in September

If the data meet expectations, it would all be moving in the right direction from the Fed's perspective. Keep in mind, however, that September's monthly core PCE price rose the most in four months, and that analysts' estimates for annual price growth remain well above the Fed's 2% target. Core PCE strips out volatile food and energy prices.

Personal Income and Personal Spending are keystones in tracking consumer spending as the holiday season continues. Black Friday results generally looked positive and didn't necessarily indicate people being scared to spend, but October's Retail Sales raised questions. So did this month's earnings calls from major retailers and recent confidence and sentiment reports. Analysts expect personal spending and income to both rise 0.2% monthly in October, Trading Economics says.

"The strength in consumer spending had its roots in massive monetary and fiscal stimulus, which contributed to elevated 'excess savings,' " note Liz Ann Sonders and Kevin Gordon, chief investment strategist and senior investment strategist at Schwab. "But more recent resilience of consumer spending amid the decline in savings and a more challenging macro backdrop has largely been driven by confidence in the labor market."

On the labor front, analysts expect a slight bump in weekly Initial Jobless Claims to 220,000 from last week's 209,000, with both readings relatively low historically. For a better read, it's helpful to track continuing jobless claims, which reflect how difficult it might be to get a new job.

Adding to Thursday's cacophony, OPEC meets, and media reports suggest deeper production cuts could result. However, current lower prices mean smaller producers might be less enthusiastic about proposed output trims. The meeting was postponed last weekend while members sorted things out.

Stocks in spotlight

Foot Locker (FL) shares left most of the market in the dust early Wednesday, jumping 9% in premarket trading after beating analysts' earnings and sales estimates and forecasting revenues higher than Wall Street had expected. It's been a muddy hike for Foot Locker investors in 2023 amid tough competition, and it still expects same-store sales to decline for the full year.

Salesforce punches in:  Enterprise software firm Salesforce (CRM) reports after today's close. The company gave optimistic forecasts last time out centered around artificial intelligence (AI), but the stock basically treaded water the last three months. Analysts expect Salesforce to report Q3 earnings per share of $2.06 on revenue of $8.73 billion, according to Earnings Whispers.

Engine revs: Shares of General Motors (GM) got a spark this morning after the company announced a $10 billion buyback plan and raised its dividend. Still, it said the United Auto Workers (UAW) strike cost it $1.1 billion, though it's keeping full-year guidance unchanged from the previous forecast.

Eye on the Fed

Early today, futures trading pegged chances at 99% of the Federal Open Market Committee (FOMC) holding its benchmark funds rate steady following the December 12–13 meeting, according to the CME FedWatch Tool. Chances of rates staying on pause following the FOMC's January 30–31 meeting are 96%. The market prices in chances of the Fed cutting rates 25 basis points by its March meeting at 41%, up from 27% a week ago.

2024 preview: The soft landing-versus-recession debate continues as 2024 nears. As in 2023, the new year is likely to be characterized by an inverse relationship between Treasury bond yields and stock prices, say Liz Ann Sonders and Kevin Gordon, Schwab's chief investment strategist and senior investment strategist. Read more in their recent "U.S. Outlook" post.

Thinking cap

Ideas to mull as you trade or invest.

Stop and go: The U.S. 10-year Treasury note yield has played a game of "red light, green light" with Wall Street over the last few months. Its recent decline to around 4.4% from 16-year highs near 5% helped drive the 10% SPX rally since late October, but investors may not want to get too excited about further gains in Treasuries (which move the opposite direction of yields). After the last FOMC meeting, Chairman Powell noted that relatively firm yields had done some of the Fed's job for it in slowing economic growth and, in turn, inflation. That's one factor letting the Fed pause interest rates since July. Should yields keep falling, it's possible the economy could turn hotter, putting pressure on the FOMC. Fed Governor Christopher Waller referred to "overall easing of financial conditions" in a speech yesterday when he mentioned the 10-year yield rising 100 basis points earlier this year and then falling 60 basis points since the Fed's last meeting on November 1. "Policymakers must be careful about relying on such tightening to do our job," he said.

PMI picture: Working late tonight? Watch for China's official November NBS Manufacturing PMI, due out around 8:30 p.m. ET. Last time, the report showed a surprise drop into contraction territory at 49.5 (under 50 indicates contraction). Analysts expect another weak month, with consensus for November at 49.8 according to Trading Economics. China's recent industrial profits and export data all pointed toward softness. One manufacturing trend to watch in China over time is the development of its domestic semiconductor industry as U.S. restrictions take a toll on imports of foreign technology. "China is likely to step up efforts to create a domestic industry and reinforce its position in markets that use chips, such as EVs and electronics," says Michelle Gibley, director of international research at the Schwab Center for Financial Research.

Farewell, Charlie: Tuesday brought the sad news that Charlie Munger, second in command at Warren Buffet's Berkshire Hathaway (BRK.A), died at age 99. Munger was active until nearly the end, making a keynote address at a conference last month and doing a CNBC interview less than two weeks ago. Munger once said, "Spend each day trying to be a little wiser than you were when you woke up," something investors might want to remember.


Nov. 30: OPEC meeting, November Chicago PMI, October Personal Spending, October Personal Income, October Personal Consumption Expenditure (PCE) prices, and expected earnings from Kroger (KR) and Dell (DELL).

Dec. 1: November ISM Manufacturing.

Dec. 4: October Factory Orders

Dec. 5: October Job Openings and Labor Turnover Survey (JOLTS) and expected earnings from AutoZone (AZO) and Toll Brothers (TOL).

Dec. 6: Expected earnings from GameStop (GME), Chewy (CHWY) and Campbell Soup (CPB).

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