Even as inflation challenges persist, U.S. consumers continued to spend at a steady pace in November, with personal spending rising 0.4% for the second consecutive month. This resilience reflects sharp rebounds in goods purchases, particularly durable goods, which saw a notable 1.8% increase. However, spending on services showed signs of slowing, growing just 0.2%, down significantly from October's pace.

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Despite strong spending, inflationary pressures within consumer expenditures appeared to ease slightly. The PCE price index rose just 0.1% month-over-month, the smallest increase in three months, while core PCE inflation, a critical Fed measure, also posted a minimal 0.1% gain. On an annual basis, headline PCE inflation edged up to 2.4%, while core PCE inflation held steady at 2.8%, falling short of market expectations.

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The spending data reflects a complex economic environment. Consumer demand remains a cornerstone of economic strength but poses risks of sustaining inflation above the Fed’s 2% target. This dynamic, coupled with the Fed’s upward revision of 2025 PCE inflation forecasts, highlights the ongoing tension between supporting economic growth and addressing entrenched price pressures.

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Consumer Discretionary Stocks Rise Heading Into Christmas Season

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Last week, U.S. indices experienced declines, with the Dow dropping 2.3%, the S&P 500 falling 2%, and the Nasdaq down 1.8%. The small-cap focused Russell 2000 saw the steepest decline, losing 4.5% while the CBOE Volatility Index surged 33%, reflecting increased market uncertainty.

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Across S&P 500 sectors, energy led the declines, down 5.6%, followed by Real Estate (-5%) and Materials (-4.2%). Consumer Staples, Financials, and Consumer Discretionary all fell around 2-2.6%, while Information Technology had the smallest drop at 0.7%. Utilities and Telecom also posted losses of 1.6% and 2.2%, respectively, rounding out a challenging week across the board.

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Treasury yields surged after the Federal Reserve's rate cut, signaling concerns over slower easing in 2025. The 10-year Treasury yield climbed to 4.52%, its highest since May, sending bond prices lower. Long-duration assets bore the brunt, with the iShares 20+ Year Treasury Bond ETF (TLT) dropping over 1%, deepening its year-to-date loss to 6.1%.

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