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 Sector Scopes Monthly Update November 2023 & iShares US Oil & Gas Exploration & Production ETF (IEO)

There has been a significant short-term shift in sentiment since last week’s Fed meeting. Although Australia subsequently raised interest rates, investors appear to have taken last week’s Fed decision as a “neutral hold” and thinking that the current global wave of monetary tightening may be getting close to an end.

Following the Fed meeting, treasury yields have started to come back down, particularly the US 10-year Treasury Note Yield which has dropped back from near 5.00% toward 4.50% over the last few days, significantly easing what had previously been a headwind for stocks. This sparked a rally in stocks which has seen gains of 6.1% for the NASDAQ, 4.4% or the S&P 500 and 3.7% for the S&P/TSX.

The big question facing investors now is whether recent action has been a relief rally from short-term oversold conditions within a declining market on short-covering and bargain hunting, or the start of a more significant rally. November has historically been one of the stronger months of the year for equities.

While gains have been widespread across geographic regions, charts indicate that most of these rallies have been 3-5 row upward reversals with actual breakouts few and far between. Similarly, while gains have come broadly across sectors, many of these have been bounces from depressed conditions rather than upside breakouts. Sectors that have staged the strongest gains of late are manly among the ones most sensitive to swings in interest rates such as Utilities, Financials, and Real Estate, along with some cyclicals like Technology and Construction.

On the other hand, disappointing trade data out of China this week has weighed heavily on commodity related markets. US and Brent Crude have sold off, dragging energy stocks (both producers and services) down with them. Metals have not been immune either with Copper and Gold both pulling back as well.

Earnings season has now passed its peak and is starting to wind down. Reports over the last week have been somewhat mixed, as has the market response to them with several stocks soaring such as Shopify, but an equal or larger number selling off, including Warner Bros Discovery yesterday. WeWork finally filed for bankruptcy this week as well, a sign of the ongoing struggles in commercial real estate post-pandemic.

The coming week brings the start of earnings season for retailers with headliners including Home Depot Tuesday, grocers Loblaw and Metro on Wednesday, and Walmart on Thursday.

Inflation and retail sales reports dominate the economic calendar for the coming week headlined by US Consumer Prices on Tuesday, followed by US Producer Prices, US Retail Sales, UK Inflation, and China Retail Sales all on Wednesday.

In this edition of Equity Leaders Weekly, we look at what the BPI feature in SIA Charts is telling us about capital flows and relative strength in equity markets, and at the recent downturn in energy stocks.

Sector Scopes Monthly Update November 2023

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