December 2, 2022

Weekly Market Commentary November 28th to December 2nd 2022

Federal Reserve Chairman Jerome Powell’s speech at Brookings Institution headlined economic news this week. His dovish remarks sent markets higher with the expectation that slowing the pace of rate hikes will reduce the risk of sending the economy into a recession. Powell reaffirmed that the Fed would remain data dependent while the longer-term terminal rate will be “somewhat higher” than expected, in an effort to hedge his dovish remarks.

The labor market remains tight, which could prove to be a headwind for the data dependent Fed. November’s Total Nonfarm Payrolls increased by 263K, more than the 200K economists expected while the Unemployment Rate remained at 3.7%. However, employers are still searching for workers and are willing to pay up. Both Average Hourly Earnings MoM and YoY came in scorching hot. November’s figure accelerated to 0.6% from 0.4%, which could reignite inflation concerns.

Core Personal Consumption Expenditures (PCE), the preferred inflation gauge for the Federal Reserve, rose 0.2% for the month and was up 5% from a year ago. The monthly increase came in below the 0.3% estimate, and represented a deceleration from September, a positive sign for the U.S. consumer. More positive news was released when the second reading of GDP was announced which surpassed both expectations and the first estimate at 2.9%. The revision was due to an upward revision in increased personal and business spending in the quarter.

Equity markets advanced as rates declined throughout the week. The S&P 500 rose by 1.1% to 4,072 while the NASDAQ Composite advanced by a solid 2.1% to 11,462. The yield on the 10-Year U.S. Treasury closed significantly lower falling 0.19% to 3.49%, trading at its lowest level since September.

Key economic releases next week include PPI, Initial Jobless Claims, and the University of Michigan surveys.

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