A quick interruption. This will be the final update of the year barring something material happens. We are working, but may take a little extra time with our families. The Q1 2023 Outlook will come out shortly after the new year. Now, back to our regularly scheduled content. The Week On Wall Street 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%. 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. 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%. 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. This Week: Notable Companies Reporting Earnings Tuesday: FedEx Corporation (FDX), Nike, Inc. (NKE), General Mills, Inc. (GIS). Wednesday: Micron Technology, Inc. (MU). Final Thoughts 2022 has been a tough year for all investors. Corporations are still profitable; inflation is coming down and unemployment is still low. The Fed is casting a shadow onto 2023 as they remain hawkish on interest rates. The problem is they aren’t any better at forecasting than anyone else. They whiffed on seeing inflation beginning to get out of hand and doing something about it in 2021. Then, they got behind the curve and had to play catch up in 2022. In addition to raising interest rates, they are pulling $95 billion per month out of the bond market, which, in effect, is a tightening of monetary policy and has consequences. So, the market is rightly nervous about whether they have gone or will go too far in their efforts to slow the economy and tame inflation. The Fed is close to being done with raising rates. They’ll go a bit more, but the bond market is the harbinger of truth in the markets and the bond market isn’t buying what Jerome Powell is selling. Last week while he was talking tough and raising rates, bind yields were going in the opposite direction. Basically, the bond market is telling us rates should be leveling off soon. The final portion of this equation is earnings. If earnings hang in there stocks will be fine. If earnings begin to decline dramatically then stocks are going to get a little worse before they get better. Stocks will get better, it is just a matter of time. Remember, the market doesn’t know or care what the date is on the calendar. It only cares about the current status of affairs and earnings. My gut says we are in for a bit more of the same for just a little while longer while stocks sort out the facts. I hope I am wrong and we go straight up from here. I would love to end the last update of the year with a really memorable quip about the markets or something that has happened along the way this year. Unfortunately, today isn't one of the days where the words just flow. However, as we look to 2023 I think it is important to take inventory and remind ourselves of what a turbulent stock market can’t take away. We are fortunate if we have our health. No amount of money can repair or replace it once it is gone. It is truly our most precious asset. unbearable days. Our pets. I am a dog lover, but whether it is a cat or a dog or a fish or a bird they provide companionship like no other sometimes. They are truly the purest souls and show us what unconditional love can look like. Our faith. When all else fails and the world is upon our shoulders, God cares. I once read true wealth is all the things money can’t buy and death can’t take away. I tend to agree. May you close out this year with those you cherish and may 2023 be your finest year yet. I pray true wealth finds you and overtakes you beyond imagination. I’m also okay if the S&P 500 has an increase too. See you next year.
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THIS WEEK'S UPDATE
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December 20, 2022
