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Stocks Rise as the Fed Considers Lower Rate Hikes

Market Data as of Week Ending: 11/25/2022 unless noted otherwise

Equities

U.S. stock prices rose last week as the Fed noted that they will consider slowing the pace of interest rate hikes at the next meeting in December. Third quarter earnings growth for the S&P 500 will finish just above 2%; however, expectations for earnings growth in the fourth quarter have flipped from a gain of nearly 4% on September 30th to a decline of more than 2%. Investors continued to show a preference for value versus growth stocks and results by size were more mixed as mid cap companies outperformed their small and large-sized peers. All the major economic sectors ended the week higher, most notably, the utilities and materials sectors which were both up around 3%. Energy stocks were the worst performing sector with only modest gains as the price of crude oil dropped below $80/barrel for the first time since September. Developed foreign and emerging markets stocks recorded gains again for the week and generally outperformed domestic equities.

Bonds

U.S. Treasury yields were generally lower as the 10-year ended the week at 3.78% and the 2-year edged up to 4.74%. Yields dropped for long duration bonds, and once again, they significantly outperformed last week. Long investment grade corporate bonds were the best performing segment; however, high yield corporate bonds were the best performing segment among intermediate term bonds. Yields declined for both investment grade corporate and high yield bonds, ending the week at 5.3% and just above 8.6%, respectively.

Macroeconomic Data

Economic data was once again mixed with some positive surprises from the durable goods and new home sales reports. For the month of October, durable goods orders increased 1% and we finally had some good news from housing as sales of new single-family homes surprised to the upside with 632,000. According to the flash PMI data from S&P, demand conditions are worsening as both the services and manufacturing sectors are in contractionary territory. S&P reports that new orders across the private sector have dropped to their lowest level in more than two years. Initial jobless claims rose by 17,000 to 240,000 last week but the job market remains tight as demand for workers remains elevated. PMI data for Europe narrowly improved but also remains in contractionary territory.

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