Has the Market Changed Its Tune?

Hi, I am Jeffrey Roach, chief economist for LPL Financial, and in this edition of the Street View podcast, I'll share three observations as 2023 comes to a close. First, I want to highlight the seasonality of the market, and I'll do that by pointing out a few things from a recent blog post from Adam Turnquist, our chief technical strategist. He highlights a couple things that are very important, that seasonal tailwinds could provide an additional boost to stocks into year end. The S&P 500 finished the "sell in May" period this week with just a modest 0.6% price gain, and that period is from May through October. Historically, that six month stretch has been the weakest for the S&P 500, averaging only a 1.6% gain over the past 70 plus years. So, the index was below average for this year. Well, fortunately for investors, the next six months look much better from a seasonal standpoint.

The S&P 500 has generated an average gain of 7% from November through April, marking the best six-month period for the market since 1950. And further, the S&P 500 has finished higher during this timeframe 77% of the time, marking the highest positivity rate across all other six-month periods. So, from a seasonal perspective, the market often changes its tune during this period. Now second, investors are getting a bit of a reprieve as yields fell from the recent highs. A key factor was the regular funding announcement from the U.S. Treasury, which told investors that Treasury will auction off less long duration securities than initially projected. So, in recent weeks, investors had growing concerns that a heavy supply of 10-year Treasury bonds, for example, would require higher yields and lower prices. So, in essence, less supply out there in the near term.

So, investors can demand higher prices and lower yields will come as a result. Now third, the latest jobs report helped markets change their tunes, specifically, about future Fed policy. Investors got more assurances recently that the job market is loosened enough for the Fed to continue its pause to any further policy tightening. The downward trend in hours worked suggests Q4 GDP growth will likely be materially lower than Q3. Roughly 19% of those employed are working part-time. Not much change from previous months, but a metric worth watching. So, the bottom line is this, unemployment is still historically low. Job growth is slowing at a moderate pace, and monthly wage growth was the slowest in over a year. Investors should view this as an all-around good report for markets, the economy, and the Fed. Well, that's all for now, but please continue to follow us on social media for up-to-date analysis on the investment landscape.

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