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Kuby’s Commentary

Tasty Turkey Trading

Nov 27, 2023


The stock market provided additional reasons for investors to be thankful, as the rally continued for the fourth straight week. The S&P 500 tacked on 1%, the Nasdaq gained 0.9%, the Russell 2000 added 0.5%, and all the sectors except Oil & Gas finished in the green. Equity trading volume was very light during the holiday-shortened trading, and the bond market barely budged, with the 10-year Treasury trading in a narrow range, closing up 6 basis points at 4.47%. Gold continued its recent ascent, finishing over $2,000 an ounce, while Crude drifted fractionally lower. It is worth noting that gas prices at the pump have been dropping precipitously, which we believe could provide a nice boost to consumer confidence.

It was a slow news week as expected, with the “higher for longer” FOMC minutes redux largely ignored, and no significant economic releases. Fed Fund futures are now suggesting approximately a 40% chance of a rate cut at the March 2024 meeting and further cuts as the year progresses. The emerging Goldilocks scenario of a stable economy with tame inflation and lower interest rates is particularly favorable for small caps stocks, which are trading at a steep valuation discount to the large caps, particularly the turbocharged “Magnificent 7” that have accounted for the lion’s share of the gains in the market in 2023 and are sporting elevated P/E multiples in the 30x to 60x range.

Regarding our proprietary monthly survey of several dozen macroeconomic statistics related to many of the companies we follow, in general, we are seeing slowing economic activity in areas including Industrial Production activity for Non-Durable Goods, architectural services that are contracting according to the Architectural Billings Index, work hours and apparel demand. One silver lining we see is that slowing construction activity is causing a decline in the Monthly Supply of New Houses in the United States, which fell below 7 months in September after more than 18 months of levels above 7 months and as high as 10 months; this recent trend bodes well for high-quality homebuilders with strong balance sheets.

Set for Santa

The recently underperforming energy sector could be in focus with the OPEC+ meeting and reports of disagreements among members over how much production to cut. Crude oil prices have dropped more than 10% over the last six weeks, as the supply/demand pendulum has swung with softening demand and a glut of supply.

The key economic report will be the latest reading on the Federal Reserve’s favorite inflation gauge, the PCE, which is expected to show a 0.2% month-over-month and 3.5% year-over-year increase. As we have stated previously, the shelter component contribution to each inflation report seems increasingly important as many other large components have decelerated to levels within striking distance of the Fed’s 2% target.

There will also be updates on new home sales, consumer confidence, and construction spending.

If the Goldilocks economy holds up, the stage is set for a nice Santa Claus rally.

The stocks mentioned above may be holdings in our mutual funds. For more information, please visit

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