Monthly Archives: December 2022
Semi-Hawkish Fed Sends Market Lower
Market Data as of Week Ending: 12/16/2022 unless noted otherwise
Equities
U.S. stock prices experienced another volatile week as growing fears over continued monetary tightening pushed the S&P 500 down (-2.05%) for a second consecutive week. Size and style was mixed with large-cap companies generally underperforming their smaller counterparts as growth stocks mostly held up better than their value counterparts. Nearly every major economic sector recorded sharp losses, with the typically defensive healthcare, consumer staples, and utilities sectors faring the best. Energy was the best performing sector, returning 1.78%, as oil prices rebounded on OPEC and IEA’s forecasts for resilient oil demand growth next year. Developed foreign and emerging markets stocks ended the week lower and in line with domestic equities.
Bonds
U.S. Treasury yields moved lower last week as the ‘lower-than-expected’ November U.S. inflation print slightly softened consensus expectations for future rate hikes. The 2-year and 10-year ended the week at 4.59% and 3.59%, respectively, as the 2s10s spread remained near its deepest level of inversion in more than four decades. Returns were negative, but mixed, across the quality and duration spectrum as investment-grade corporate bonds proved most resilient. Yields remained relatively flat for both investment grade corporate and high yield bonds, ending the week at 5.1% and just above 8.5%, respectively.
Macroeconomic Data
Economic data was generally mixed in what was a week dominated by the Federal Reserve’s rate announcement. The week was kicked off with the NFIB smallbusiness index rising to 91.9 in November, showing growing confidence among small-business owners heading into the holiday season. The cost of living rose a meager 0.1% in November, which brought the annual inflation rate to 7.1% from 7.7% in the prior month, suggesting the worst U.S. inflation in 40 years is receding. U.S. retail sales fell 0.6% in November, its biggest decline in almost a year, driven mainly by weak car sales. The Philadelphia Fed manufacturing index improved to a reading of -13.8 in December from -19.4 in the prior month, but was slightly below consensus estimates. The ECB and BOE both raised their key interest rates by 0.5% as both central banks signaled further increases may be required to bring inflation back down to their targets.
Strong Economic Reports Send Market Lower
Market Data as of Week Ending: 12/9/2022 unless noted otherwise
Equities
U.S. stock prices gave back much of the previous two week’s gains as some surprisingly stronger-than-expected economic data dampened hopes that the Federal Reserve may slow its monetary policy tightening. Large-cap companies outperformed their smaller counterparts as the Russell 200 recorded its worst week since late September, returning -5.06%. Growth stocks endured the brunt of the pain, lagging their value counterparts. All eleven of the major economic sectors ended the week lower, with the typically defensive health care, consumer staples, and utilities sectors faring the best. Energy was the worst performing sector, returning -8.30%, as oil prices plummeted to a one-year low with rising global recession risks weighing on demand expectations. Developed foreign and emerging markets stocks ended the week lower but outperformed domestic equities.
Bonds
U.S. Treasury yields edged higher toward the end of the week, reflecting a hotter-than-expected inflation print and news that China may ease some of its COVIDrelated restrictions. The 2-year and 10-year ended the week at 4.70% and 3.70%, respectively, as the 2s10s spread remained near its deepest level of inversion in more than four decades. Returns were negative, but mixed, across the quality and duration spectrum as investment-grade corporate bonds proved most resilient. Yields rose for both investment grade corporate and high yield bonds, ending the week at 5.2% and just above 8.5%, respectively.
Macroeconomic Data
Economic data was generally better-than-expected in what was a light week. The week was kicked off with the ISM services-sector index rising to 56.5% in November, a strong signal that the economy continues to expand. October factory orders rose 1%, marking the twelfth increase in the past thirteen months. The U.S. producerprice index rose a more-than expected 0.3% in November but is showing steady deceleration at the year-over-year level. The University of Michigan’s consumer sentiment index rose to a preliminary reading of 59.1 in December as inflation concerns appear to be easing. China announced a 10-point guideline for their new COVID prevention and control measures as the country shifts from a zero-COVID policy to reopening.
Dovish Fed Comments Send Stocks Higher
Market Data as of Week Ending: 12/2/2022 unless noted otherwise
Equities
U.S. stock prices ended the volatile trading week higher as markets rallied on the growing belief that the Federal Reserve may slow the pace of its interest rate hikes. During his speech, Fed Chairman Jerome Powell hinted at the possibility of rates remaining higher for longer but indicated that the pace of rate increases could slow by as early as the mid-December meeting. Growth stocks benefited the most from this rhetoric, outpacing their value counterparts, while mid and small-cap companies generally outperformed their large-sized peers. Nine of the eleven major economic sectors ended the week higher, most notably, the communication services and consumer discretionary sectors while the financials and energy sectors were the worst performing, falling -0.55% and -1.89%, respectively. Developed foreign and emerging markets stocks recorded gains again for the week and generally outperformed domestic equities.
Bonds
U.S. Treasury yields moved lower as dovish Fed commentary suggested their policy rate may be nearing its peak. The 2-year and 10-year ended the week at 4.66% and 3.59%, respectively, as the 2s10s spread reached its deepest level of inversion in more than four decades. Yields dropped for long duration bonds, and once again they significantly outperformed last week with long government bonds being the best performing segment. Yields declined for both investment grade corporate and high yield bonds, ending the week at 5.1% and just above 8.4%, respectively.
Macroeconomic Data
Economic data was once again mixed with Friday’s employment report garnering much of the attention. The week was kicked off with the consumer confidence index falling to a four-month low of 100.2 in November, reflecting growing concern around the economy. The Chicago PMI fell to 37.2 in November, down from 45.2 last month and its lowest level since early 2020. The PCE price index rose a modest 0.3% in October, signaling easing price pressures. Consumer spending rose by 0.5% in October, up from the 0.3% gain in September. The ISM manufacturing data fell to a 30-month low of 49% in November, contracting for the first time since the onset of the pandemic. The U.S. added 263,000 new jobs in November, a surprisingly strong report that reflects the strength of the labor market. Inflation in the Eurozone slowed for the first time in 17 months, falling 0.6% to 10.0% in November as energy costs eased.