Market Update: November 22nd, 2023

Black Friday Edition

Over the past week, the trends continued with inflation continuing to decrease and job growth slowing in the United States. Black Friday is the ultimate shopping day in the US and Canada, as consumers gear up for the Holiday season. This is normally a good gauge of the health of the consumer and the data might be very telling this season. The consumer has weakened for sure. Are they weak to the point where they will not spend as much this year or have, they just been waiting for these discounts to spend?

Topics

Inflation Continues to Decline
Black Friday Importance 

Inflation Continues to Decline

In Canada, the year-over-year inflation number dropped to 3.1% from 3.8% last month. Also, we saw the Producers Price Index (the price manufacturers pay for goods) come down to -2.7% year over year, which crept up in the summer but has been consistently negative all year. 

Core inflation (inflation minus food, gas, and mortgage interest) in Canada, dropped to 2.7%, which shows a continued contraction in prices. Food and gas are out of the control of the Domestic government policy and there are more global factors at play. This decline has put the Bank of Canada on hold for interest rate hikes for the time being.

PPI is important because it gives a good indication of where the Consumer Price Index (CPI) will move going forward. When the value is negative, we generally see a trend of declining CPI, this has been true all year except for a brief scare over the past few months when PPI flattened out. This should give investors more confidence that inflation will be moving in the right direction as long as this number remains negative. Hopefully, manufacturers will pass these savings on to consumers, but we won’t hold our breath for too long.

In the US, jobs continue to be in focus. The unemployment rate sits at an impressive 3.9% vs. 5.7% in Canada but they are showing a slowing in the hiring process. They have been able to avoid firing people in masses, but companies are not hiring very much either. So far, it’s a soft landing until either they start firing or start hiring again.

Black Friday Importance

4 out of 10 people finish all of their Holiday shopping by the Monday (Cyber Monday) of the weekend. These sales numbers should give a good indication of the economy and the stock market usually follows suit.

With that many people shopping all in just one weekend, this gives an excellent sample size of what the consumer looks like in a short period of time. The reason this is so important is because 70% of the US economy is the consumer. If 70% of the economy is the consumer and 13% of total annual sales happen this weekend. This means 9% of the entire US economy is summed up during this weekend. 

The market gets a better picture of that after Black Friday has occurred. If the market is down 1% or greater after this week, the next 3 months are up only 33% of the time. If the market is up next week by greater than 1%, the following 3 months are up 81% of the time.

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This statistically and historically is a very important weekend of investment returns and rightfully so. This weekend does represent a big part of the US economy. 

Summary 

There has been slow but steady progress on the inflation side of things, the restrictive interest rate environment has done its job and limiting consumers and companies. We are flirting with a negative outcome by leaving the interest rates at these levels for too long, considering many years of rock-bottom interest rates. There will need to be a reduction to help asset valuation for the longer term and for consumers to catch their breath under mortgage payments. Black Friday is important and next week will give a good indication of the true health of the consumer; investors will be watching.

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Sincerely,

Justin, Konrad, and Merriel

More articles and information are available at www.knowprotectgrow.com

Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research

Disclaimer: This newsletter is solely the work of Justin Lim and Konrad Kopacz for the private information of their clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.

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