Equity markets are poised for their 5th consecutive weekly gain, with November having turned in one of the best performances for that particular month since 2020 and the 4th best November since 1954. Recent market performance and the dawn of the holiday season provides the inspiration for this week's musings.
The holiday classic, "Jingle Bell Rock" was originally recorded by Bobby Helms in 1957. Here's some trivia about this beloved song:
This song is considered the first mainstream rock'n'roll Christmas song. Helms was a successful country music artist at the time, leading to the song being classified into the "rockabilly" genre. The song hit #3 on the Billboard charts in 1957, has gone double Platinum, and is the 9th best selling Christmas song of all time.
There's a bit of controversy about the song. Joseph Beal and James Boothe are given credit for originally writing the song. However, Helms and a fellow musician on the song, Hank Garland, didn't care for original song and made changes to it. Helms and Garland claim the original song was "Jingle Bell Hop" and the song we know today has little resemblance to the original. Strangely-enough, neither Helms or Garland is given any credit for their re-writes.
This song has re-appeared on the Billboard charts since its first recording due to the number of covers for the hit. Among those that have re-recorded the song are: Brenda Lee, Hall & Oates, The Beach Boys, Chubby Checker, and 38 Special.
Garland not only helped write and played guitar on this song, but also played guitar on the original recording of "Rockin' Around The Christmas Tree."
"What a bright time, it's the right time
To rock the night away
Jingle bell time is a swell time
To go glidin' in a one-horse sleigh
Giddy-up jingle horse, pick up your feet
Jingle around the clock
Mix and a-mingle in the jinglin' feet
That's the jingle bell
That's the jingle bell
That's the jingle bell rock"
Here's what we've seen so far this week...
What A Bright Time. What if the apocalypse of the markets being foretold earlier this year isn't going to happen yet? While some headwinds exist in the economic picture, markets are headed higher for the time being. The S&P 500 Index just turned in one of the best performances for November. Since 1954, only 5 times has November returned north of 8%. This year, the S&P was up 8.9% in November. Following those 5 November returns, the S&P was positive 75% of the time the next calendar year.
Historically speaking, markets are usually ahead of the curve when it comes to recessions. One way of measuring when markets are foretelling of a recession ahead is to look at the performance of Consumer Discretionary stocks relative to Consumer Staples. When we look back at the 2008 Financial Crisis, the ratio of Discretionary stocks out-performing Staples had plummeted 21% from June to December of 2007 - i.e., 5 months prior to the recession beginning. Similarly, from April of 2019 to December of 2019, the ratio had declined 6% prior to the beginning of the recession that resulted from COVID.
Yet this year, we can see a resurgence in the ratio. Consumer Discretionary stocks are out-pacing Consumer Staples and that ratio has risen 36% since bottoming in December of last year. While there have been concerns recently about the out-performance of the "Magnificent 7" stocks, that seems to be changing. With the exception of Tesla, all other members of the "Magnificent 7" have lagged the S&P 500 Index over the past two weeks. In addition, other sectors of the market are out-pacing the broad equity index.
If we look at the S&P 500 Index (generally representing large cap stocks), the benchmark has been out-performed by IWM (the ETF representing the Russell 2000 Small Cap Index) since the market bottomed on October 27th. The same can be said of Mid-caps, as that group of equities has out-paced the S&P 500 by more than 200 basis points on the upside. What's important about the lower capitalization classes of equities, such as small caps and mid-caps, is that out-performance for those groups is typically foretelling of coming out of a recession rather than entering one.
Jingle Bell Time Is A Swell Time. While some areas of the economy such as manufacturing and real estate have struggled recently, other sectors are starting to show some life. Both the Dallas and Richmond manufacturing indices showed continued weakness this week as both were lower than the previous month's reading. Housing, which has been in contraction since the end of 2021, is starting to show some signs of life.
Building Permits were higher in October and have risen for three consecutive months. Construction Spending for October tripled the rate of the previous month and has increased in 8 of the last 10 months. The consumer continues to show resilience as Redbook Sales were higher last week, nearly doubling the previous week's reading. In fact year-over-year growth is on an upward trajectory since bottoming in July of this year. This is verified by the Black Friday and Cyber Monday results from this year. Cyber Week, the five days from Thanksgiving to Cyber Monday shows record spending online across the board, equating to +7.8% growth, year-over-year. Physical traffic in retail stores was up 1.5% for Black Friday weekend versus a year ago.
Pressure in the form of interest rates and inflation that has plagued consumers for more than two years is finally easing. The rate on a 30-year mortgage is down 55 basis points from just over one month ago. A similar drop in the yield on the 10-year Treasury has been over the same time period. In fact, markets are now pricing in a potential rate cut by the Fed next year.
Just one month ago, there was only a 13% probability of a rate cut by the Fed for March, where that probability has risen to a 52% probability. This would continue to reduce pressure on consumers and aid in fueling the economy. In fact, the Fed's favorite measure of inflation, the PCE Price Index, showed 0% increase month-over-month for October and fell to 3% on a year-over-year basis versus 3.4% the previous month. If strong spending continues during the holidays and inflationary pressures, along with interest rates, steadily eases, we should expect a Santa Claus rally.
Here's the holiday classic for your enjoyment....
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