Life is made up of small pleasures. Happiness is made up of those tiny successes. The big ones come too infrequently. And if you don't collect all these tiny successes, the big ones don't really mean anything. ~ Norman Lear (July 27, 1922 - December 5, 2023)

Good evening,

Last week, Fundstrat Head of Research Tom Lee posited that November jobs numbers could come in strong, what with autoworkers, screenwriters, and actors returning to work after ending their respective strikes, and with related industries consequently ramping up. Along with seasonal hiring and better weather, this helped jobs numbers exceed expectations. Stocks temporarily dipped in response to the news before climbing back, as investors initially feared that the numbers would increase the likelihood of higher rates, before concluding that they diminish the likelihood of an upcoming recession.

This was generally in line with expectations on the part of Lee, who saw last month’s jobs numbers as “overall benign.” He said, “To me, it does not necessarily feel like the U.S. job market has suddenly strengthened in the past month.” Lee further argued that this would not be enough to push Fed policymakers in a hawkish direction ahead of next week’s FOMC meeting. 

This was particularly true since Lee anticipates the next CPI print, to be released a day before the December 13 FOMC meeting, will be benign as well as inflationary pressures continue to weaken. We saw evidence of this on Thursday, when the Manheim Used Vehicle Index Nov Final was released. Used car prices fell -2.1% in November - a 25% annualized rate of decline. Manheim reflects wholesale conditions, so this will not be seen in CPI for another two months, but it is further support for the thesis we have had all year.

The latest Manheim data is seen in our Chart of the Week:

As of this writing, Fed futures trading implies nearly unanimous market agreement that the Fed will leave rates unchanged on December 13. 

This week also saw the unveiling of Lee’s highly anticipated 2024 Market Outlook. As members learned, Lee sees the market rallying not just through December, but also into December 2024, ending next year at 5,200. During his presentation, Lee explained that his forecast was driven in part by his expectations of a faster-than-expected easing of financial conditions, and no recession.

Mark Newton, Head of Technical Strategy, is also constructive for 2024 in advance of his 2024 Outlook, to be released on Thursday, December 14. In the meantime, Newton warned that December 2023 could offer some potential pitfalls. “The S&P 500 remains under July 2023 peaks of 4,607.07,” he pointed out while contending that the SPX was near resistance and might not be able to extend much further without some consolidation. Also informing Newton’s analysis: in his view, sentiment has gotten increasingly optimistic and seasonality remains subpar until mid-to-late December.

“Given recent trading history, December 11 to December 21 looks potentially negative,” Newton said. Still, he believes any selloff is likely to prove short-lived.

For Newton, with the S&P 500 closing the week at 4,604.37, above the technically significant 4,600 level, it will be important to watch market breadth, along with the rise in yields and the dollar, in the immediate term. “Given recent correlations, these cannot be ignored,” he said. 

So what does Newton like right now? Industrials continue to look attractive, with Aerospace and Defense stocks in particular showing strong potential. “Aerospace and Defense can arguably continue to strengthen following recent technical strength, especially given heightened strife in Europe and the Middle East,” he said.

Elsewhere 

Germany continues to struggle with its 2024 budget, with the country’s ruling coalition conceding that a deal is unlikely before the end of 2023. A court had previously prohibited the government from either using previously issued pandemic-related debt or issuing new debt to cover a spending gap estimated at EUR 17 billion ($18.3 billion). By law, Germany’s deficit cannot exceed 0.35% of its GDP. 

The Biden administration announced it would award licenses for third-party competitors to manufacture patented medicines developed with federal funds if the patent-holders’ prices are deemed to be unreasonably high. If this proposed rule is finalized, it would be the first time the U.S. government had exercised its so-called march-in rights, which were introduced in 1980’s Bayh-Dole Act. 

Moody’s cut its outlook on China from stable to negative. The ratings agency cited China’s economic slowdown, burgeoning property crisis, and large debt loads carried by local governments and state-owned enterprises, which threaten to “undermine China’s fiscal strength and potentially its creditworthiness.” Meanwhile, China reported on Friday that exports grew in November – the first such increase since May – beating expectations of a 1.1% decline.

Google released Gemini, its latest AI model, claiming that it was more capable than OpenAI’s latest, ChatGPT 4.0, in 30 of 32 academic benchmarks. From the start, Gemini was built and trained to be multimodal, as opposed to some other generative AIs that had audio and video capabilities grafted on afterwards. The company claims Gemini has problem-solving capabilities and knowledge in 57 subject areas. It will be integrated into Google’s existing suite of tools (including its Bard chatbot) rather than released as a standalone product. 

Mackenzie Scott, former wife of Amazon founder Jeff Bezos, donated $2.15 billion to 360 organizations in 2023, supporting a wide range of causes. The Bloomberg Billionaires Index puts her current net worth at $33.7 billion. 

And finally: The first Programme for International Student Assessment survey since the pandemic showed an “unprecedented decline” in academic achievement around the world, according to the OECD. PISA tests 15-year-olds around the world in math, science, and reading. It showed that the pandemic-related disruptions to schooling around the world were followed by 15-year-olds losing nearly a year of progress in mathematics. U.S. students scored better in mathematics than counterparts in just six out of 36 participating OECD countries. They fared comparatively better in reading and science, however: U.S. students did better on reading tests than counterparts in 28 out of 36 OECD countries, and better on science tests than counterparts in 16 OECD countries.