For investors, there are a variety of reasons to give thanks this year, including turkey prices that are lower today than they were last year.
The US inflation rate peaked over a year ago, and the market expects that Federal Reserve rate hikes are over.
The “most-anticipated” recession on record has not occurred, and the US economy has grown at a strong clip in 2023.
It’s the time of year to reflect on what makes us thankful. For me, it starts with life having returned to a level of normalcy. It was only a few years ago that the COVID pandemic had us altering our Thanksgiving Day plans. I, for one, won’t miss having to hold the family gathering outside in 40-something degree weather. It wasn’t ideal, but in hindsight I was fortunate to be healthy and together with family.
As I once again return to the familiar Thanksgiving routine, I’m mindful of the many challenges that the world is facing and have no intention of sugarcoating these issues. I simply want to take a moment to focus on the true spirit of the holiday and remind myself of what I’m thankful for.
In that spirit, below is a list of 10 items that investors can be thankful for this year.
The “most-anticipated” recession on record has not occurred. Not only is the economy not in recession, but it has grown at a strong clip in 2023.1
Gas prices and airfares are falling, making it cheaper for Americans to travel to their friends and families this year than it was in 2022.2 In addition, the traditional Thanksgiving meal won’t cost as much as last year either. The American Farm Bureau Federation reveals that seven of the 11 featured items on the Thanksgiving menu — including turkey, stuffing, peas, and cranberries — are down from last year.3
The inflation rate has fallen from 9.1% in June 2022 to 3.2% in the last reading.4 Admittedly, higher prices are still challenging American households. Nonetheless, the implications for the financial markets have been significant. Historically, the broad US equity market, as represented by the S&P 500 Index, has often performed well in the aftermath of a peak inflation rate, and this time has been no different.5
The rate of inflation has fallen rapidly6, and the market’s expectation for inflation has been contained within the Fed’s perceived “comfort zone.” This means the end of policy tightening is likely here.7 This should be music to the ears of investors who have been taught to “not fight the Fed.”
The US unemployment rate has been under 4% for 1.5 years, while jobless claims remain well below the long-term average.8
How is it possible for interest rates to jump by 5% in less than two years without a significant impact on American households?9 The answer is fixed-rate home mortgages. It’s estimated that 80% of Americans homeowners have fixed-rate mortgages, and most of them have interest rates below 4% or even below 3% after moving or refinancing when rates hit record lows during the pandemic.10
It’s been said that bull markets grow in skepticism and end in euphoria. Investors do not appear euphoric, with over $22 trillion sitting in bank deposits and money market strategies.11 There appears to be “dry powder” that will likely return to the credit and equity markets in the coming years.
S&P corporate earnings climbed to $220 in the third quarter, nearly doubling since the pandemic-driven low in 2020.12
Not that long ago, investors were clamoring to find yields of greater than 2% or 3%. Today, they’re now presented with higher interest rates across the US Treasury yield curve as well as in corporate and municipal bonds.13
Through every American generation, the economy has faced its share of challenges and has come back stronger. Over time, markets reflect whether conditions are getting better or worse, and history teaches us that conditions have tended to improve over time, even if the path isn’t always straight. It’s why the market, as represented by the S&P 500 Index, has hit a new high every 16 days since 1957 and is only a stone’s throw away from a new high today.14
Happy Thanksgiving. Be safe and be well.
Source: US Bureau of Economic Analysis, 9/30/23.
Sources: American Automobile Association, 11/15/23 and the US Bureau of Labor Statistics, 10/31/23. Based on the Daily National Average of Regular Unleaded Gasoline Prices and the Consumer Price Index Airfares.
Source: American Farm Bureau Federation, 11/15/23.
Source: US Bureau of Labor Statistics, 10/31/23.
US Bureau of Labor Statistics, 10/31/23 and Bloomberg, 10/31/23. Peak inflation dates are Feb. 1970, Dec. 1974, Mar. 1980, Dec. 1990, and Jul. 2008 and the statement is based on the 1-year return of the S&P 500 Index following the peak in inflation. 2008 is the lone exception.
Source: US Bureau of Labor Statistics, 10/31/23. Based on the US Consumer Price Index.
Source: Bloomberg, 11/15/23. Based on the 5-year, 5-year forward inflation breakeven, a measure of expected inflation (on average) over the five-year period that begins five years, which is currently below 2.5%
Source: US Bureau of Labor Statistics, 11/16/23.
Source: Bloomberg, 11/15/23. Based on the 10-year US Treasury rate.
Source: Bankrate.com, 10/31/23.
Source: US Federal Reserve and Investment Company Institute, 10/31/23.
Source: Bloomberg and Standard & Poor’s, 9/30/23.
Source: Bloomberg, 11/15/23. Based on the yields to worst of the Bloomberg US Treasury Index, Bloomberg US Corporate Bond Index, and Bloomberg US Municipal Bond Index. Yield to worst is the lowest potential yield an investor can receive on a bond without the issuer actually defaulting.
Source: Bloomberg, Standard & Poor’s, 11/19/20.
Global unrest can tempt investors to deviate from investment plans, but markets have continued their long-term growth throughout history despite wars.
Election campaigns, wars, and natural disasters contributed to a cacophony this month. I’m staying focused on the three main things that really drive markets in the long run.
Policy can influence industries, geopolitical relationships, and your tax bill. So, the presidential election remains top-of-mind for investors.
Important information
NA3237979
Header image: Aleksandar Nakic / Getty
Investors should consult a financial professional before making any investment decisions. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
All investing involves risk, including the risk of loss.
Past performance does not guarantee future results.
Investments cannot be made directly in an index.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.
Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Tightening monetary policy includes actions by a central bank to curb inflation.
The yield curve plots interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates to project future interest rate changes and economic activity.
The US Consumer Price Index (CPI) measures change in consumer prices as determined by the US Bureau of Labor Statistics. Core CPI excludes food and energy prices while headline CPI includes them.
The S&P 500® Index is a market-capitalization-weighted index of the 500 largest domestic US stocks. The S&P 500 Total Return Index assumes that all cash distributions are reinvested.
The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, and taxable corporate bond market. It includes USD-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.
The Bloomberg US Municipal Bond Index is a rules-based, market-value-weighted index engineered for the long-term tax-exempt bond market and includes bonds rated investment grade by at least two of the three major rating agencies (Moody’s, S&P, and Fitch).
The Bloomberg US Treasury Index is an unmanaged index of public obligations of the US Treasury with remaining maturities of one year or more.
The opinions referenced above are those of the author as of Nov. 16, 2023. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
This link takes you to a site not affiliated with Invesco. The site is for informational purposes only. Invesco does not guarantee nor take any responsibility for any of the content.
