The Weekly Wrap: December 19, 2022

Week in Review

The stock market sold off last week as the Federal Reserve signaled further rate hikes despite Tuesday’s better than expected inflation reading. The S&P 500 dropped 2.1%, the Dow Jones Industrial Average fell 1.7%, and the Nasdaq Composite declined 2.7%. Interest rates fell slightly, and the 10-year Treasury yield remains below 3.5%. The US Dollar index erased early-week declines to close largely unchanged, and gold prices failed to move much either. Oil prices jumped 4.6%, partially offsetting the huge selloff from the prior week. Crude is down 1.2% on the year. Bitcoin dropped 2%.

After four consecutive interest rate hikes of 0.75%, the Federal Reserve slowed the pace of tightening by raising rates by only 0.50% at last week’s meeting. It’s the first sign of a dovish pivot since the Fed began applying the economic brakes in early 2022. They’re still far from loosening policy, though, according to Chairman Jerome Powell. At his post-meeting press conference, he noted the risks of letting inflation expectations become unanchored. He pointing to missteps during the 1970s, when premature rate cuts allowed price pressures to spin out of control.

Monitoring Macroeconomics

GDP rebounded in the third quarter of 2022 after two consecutive quarters of negative growth to start the year. That should help dispel fears of an ongoing recession, especially since one was never confirmed by the National Bureau of Economic Research.

Measures of inflation remain well above the Federal Reserve’s 2% target, but CPI has decelerated for 2 straight months, an encouraging sign. Unemployment remains historically low at 3.7%, and consumer spending, measured by retail sales, remains robust.

What’s Ahead

The economic calendar is packed full ahead of the long holiday weekend. We’ll get updates on the housing industry, with the NAHB housing market index on Monday, housing starts on Tuesday, existing home sales on Wednesday, and new home sales Friday. The Conference Board and the University of Michigan will report on consumer confidence Wednesday and Friday, respectively. The final read on 3Q GDP arrives on Thursday, followed by PCE prices, personal income and spending, and durable goods orders on Friday. Numerous Fed speakers can also be expected following the end of their quiet period.

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