Market snapshot: little conviction but November to end with big gains

Markets paused as a breathless November draws to a close, with the latest US GDP economic release diluting recessionary concerns.

The earlier estimate of third quarter GDP was upgraded to 5.2% from 4.9%, underlining brisk economic growth as opposed to the recessionary fears which have been in the background for most of this year. At the same time, consumer spending also rose by a healthy 3.6%, downgraded from the previous 4% forecast, but nonetheless showing that the main pillar of the US economy remains intact.

The release also shows some signs that the lagging effect of interest rate rises is now beginning to wash through, with momentum slowing slightly. At the current trajectory, the Federal Reserve’s ideal outcome of a soft landing for the economy alongside bringing inflation back to its target could well prove achievable.

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Recent data has tended to indicate some cooling of the economy without tipping the balance, with softer numbers coming from retail sales, job growth and the unemployment rate. The base case for investors remains that the hiking cycle is complete, although there is still some light between the consensus of rate cuts towards the middle of next year and the Fed’s own mantra of higher for longer.

Indeed, this impasse could play out for some time. Central banks in general are likely to take a step back to digest the impact of previous rises without committing to any monetary easing until they are satisfied that inflation is fully under control. At such a time, company profits which had seen the benefit of pricing power by passing on price rises, could also come under some pressure, while a potentially slowing economy would also dampen revenues and margins.

In the meantime, and ahead of an important inflation print today, the November performance has edged the main indices to within a whisker of the highs achieved in the summer months. In the year to date, the Dow Jones is now ahead by 6.9%, the S&P500 by 18.5% and the Nasdaq by 36.2%.

Apart from the release of the Personal Consumption Expenditures report today, investors are awaiting a speech from Fed Chair Jerome Powell tomorrow which should provide some insights on the current thinking ahead of the December interest rate decision.

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Asian markets also paused for breath overnight, with the Nikkei index dropping slightly after a strong recent run which has returned the index to multi-decade highs.

The situation in China remains the bane of the region, with the latest manufacturing data providing little scope for positive relief. The factory survey not only showed a further contraction in November but also at a faster pace which, coupled with the existing woes emanating from the property sector in particular, could reignite investor calls for more targeted stimulus measures to be introduced by the authorities.

In the UK, the FTSE 100 got off to a cautiously positive start which quickly evaporated, with broker upgrades to NatWest Group (LSE:NWG) and B&M European Value Retail SA (LSE:BME) propelling those shares towards the top of the leader board. There were also some signs of a tentative return to risk-on trading with some strength in the mining stocks, while the oil majors also ground higher on an oil price which has stabilised ahead of the imminent OPEC meeting.

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On the downside the falling stocks were limited to marginal losses, with Severn Trent (LSE:SVT) marked lower having gone ex-dividend today. The early dip back into the red now leaves the FTSE100 down by 0.5% in the year to date, seemingly unable to attract any respite.

In addition, the beleaguered FTSE250 added to its own recent declines and has now lost 2.4% so far this year. The index is something of a representation for anaemic growth prospects in the UK, with the possibility of a technical recession given an increasingly pressed consumer still on the cards within the coming months.