Hawkish comments by the Fed and weak economic data heightened investors’ recession concerns and sent stocks lower last week.
The Dow Jones Industrial Average lost 1.66%, while the Standard & Poor’s 500 retreated 2.08%. The Nasdaq Composite index declined 2.72% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.88%.1,2,3
Stocks Under Pressure
Stocks began the week on a positive note, supported by a cooler-than-expected Consumer Price Index (CPI) report. Stocks reversed direction mid-week, however, following the Federal Open Market Committee (FOMC) meeting in which another 0.5% rate hike was announced.
The half-point increase was widely anticipated, but the increase in the terminal rate (i.e., the point at which the Fed stops raising rates) rattled investors. Continued hawkishness by Fed Chair Powell at the post-meeting press conference added to investors’ anxiety. The potential for higher rates for longer, along with disappointing economic data, particularly a sharp decline in retail sales, amplified fears of a recession and sent stocks lower for the remainder of the week.
Inflation and the Fed
The release of November’s CPI showed inflation cooling for the second consecutive month, as prices rose just 0.1% month-over-month and 7.1% from a year ago. Both were better than expected.4
The FOMC ended its last meeting of 2022 by raising interest rates another 0.5% and signaling that it would likely continue to hike rates into the new year. At a subsequent press conference, Fed Chair Powell commented that the next rate increase could be a quarter-percentage point. Most FOMC members appear to support raising the terminal rate (the point at which hikes end) to above 5%, up from its September projection of 4.6%.5
This Week: Key Economic Data
Tuesday: Housing Starts.
Wednesday: Consumer Confidence. Existing Home Sales.
Thursday: Jobless Claims. Gross Domestic Product (GDP). Index of Leading Economic Indicators.
Friday: New Home Sales. Durable Goods Orders. Consumer Sentiment.
Source: Econoday, December 16, 2022
This Week: Companies Reporting Earnings
Tuesday: FedEx Corporation (FDX), Nike, Inc. (NKE), General Mills, Inc. (GIS).
Wednesday: Micron Technology, Inc. (MU).
Source: Zacks, December 16, 2022
Our office will be closed this Friday, December 23rd, and Monday December 26th, to spend time with our families over the holiday. Wishing you all a very Merry Christmas!! Sean, Trish, and Erin
Chiyoda City, Tokyo, Japan
Footnotes and Sources
2. The Wall Street Journal, December 16, 2022
3. The Wall Street Journal, December 16, 2022
4. CNBC, December 13, 2022
5. The Wall Street Journal, December 14, 2022
6. IRS.gov, August 8, 2022
7. Healthline, February 22, 2022
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
Please consult your financial professional for additional information.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG is not affiliated with the named representative, financial professional, Registered Investment Advisor, Broker-Dealer, nor state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Copyright 2022 FMG Suite.
Weekly Market Insights: Recession Concerns, Fed Talk Keep Stocks Cold
December 20, 2022|