Market Pulse: November 2023

November 21, 2023

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We are excited to share insights from the Wealth Management Investment Strategy Group (ISG).

October was an eventful month with a new war breaking out in the Middle East, which has increased the geopolitical risk around the global economic and markets outlook.

The markets: volatile

After a strong start, stocks changed direction halfway through October with the S&P 500 finishing the month down 2.1%. US small-cap stocks were particularly hit, with the Russell 2000 finishing down 6.8%.

Bond prices experienced significant moves too, with the 10-year US Treasury yield briefly touching 5%, a level not seen since July 2007. The VIX Index, which measures volatility and is often referred to as the “fear gauge” reached its highest level since late March when the regional banking turmoil was still top of mind.

Why? The financial markets are coming to terms with the Federal Reserve’s stance to keep interest rates “higher for longer”.

The economy: moderating

The US economy remains strong but may be moderating. Q3 GDP showed the fastest pace of growth since the end of 2021 mainly due to a jump in consumer spending. But ISG expects economic activity to slow in the current fourth quarter. Early signs of this were evident in the October employment report, showing slower job growth and a spike in unemployment to 3.9%, the highest since January 2022.

As the markets expected, the Federal Reserve (Fed) held interest rates steady at the October/November meeting. ISG believes the FOMC has reached the end of its hiking cycle and will keep the federal funds rate unchanged at 5.25%-5.50% through the middle of 2024.

What are we watching over the month ahead?

With a US government shutdown averted for now, the focus remains on upcoming US data and the last FOMC meeting this year in early December. ISG expects the Fed to remain on hold through the middle of 2024 as gradual disinflation continues and economic activity slows to a below trend pace. In the near term, the balance of risks remains tilted toward another rate hike, especially if the recent tightening of financial conditions were to unwind.

This memo and the views within are based on the Wealth Management Investment Strategy Group’s November Macro Monitor publication – a publication focused on the team's global macroeconomic views.

The Investment Strategy Group (“ISG”), part of the Asset & Wealth Management business (“AWM”) of GS., focuses on asset allocation strategy formation and market analysis for GS Wealth Management. Any information that references ISG, including their model portfolios, represents the views of ISG, is not financial research and is not a product of GS Global Investment Research and may vary significantly from views expressed by individual portfolio management teams within AWM, or other groups at GS.

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