December 16, 2022

Weekly Market Commentary December 12th to December 16th 2022

The week led off with the release of the Consumer Price Index, which showed inflation data was cooler than expected. CPI month-over-month was 0.1% while year-over-year was 7.1%, both 20bps below expectations. Some of the price easing came from energy, particularly gasoline and electricity. Medical care services had the biggest monthly decline on record, and travel categories like airfares and hotel stays also declined.

On Wednesday we saw the Fed raise rates by 50bps to a range of 4.25% to 4.50%. Although the market was expecting a 50bp increase, they were not expecting a 5.1% rate projection for 2023, up from the 4.6% projection given in September. This revised projection was a near-uniform view among Fed members and is in line with Jerome Powell’s comments that we still have a long way to go to rein in inflation. The markets fell over 1% following this event and continued lower on Thursday and Friday.

Jobless Claims fell by 19,000 to 211,000, missing expectations and reaching a 3-month low. The continued low level of jobless claims highlights ongoing tightness in the labor market.

Retail Sales month-over-month fell by 0.6%, the biggest decline in nearly a year. Excluding gasoline and autos, sales were down 0.2%. The report suggests some loss of momentum in consumer demand for goods amid high inflation as well as a shift from goods to services. Categories that fell included motor vehicles, electronics, and furniture and building materials stores. Restaurants and bars, on the other hand, rose by 0.9%, the fourth consecutive increase.

MBA Mortgage Applications index rose 3.2% on the week after falling 1.9% in the prior week. Purchases were up 4% after falling 3% in the prior week, and Refis were up 2.8% compared to 4.7% last week. The shift in purchasing activity can be attributed to the 30-year mortgage rate sitting near a 3-month low, currently 6.42%

A vast array of significant economic data sent equity markets as high as +4.3% on the week to a low of -3.1% on the week. In the end, the S&P 500 finished 2.1% lower to 3,852, the Nasdaq 2.9% lower to 11,206, and the Dow Jones Industrial Average 1.7% lower to 32,918. Treasury yields declined on the week with the 10-Year U.S. Treasury closing at 3.49% and the 2-Year U.S. Treasury closing at 4.19%, the lowest weekly close since mid-September.

Notable economic releases next week include Housing Starts and Permits, Existing and New Home Sales, Durable Goods Orders and Jobless Claims.

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