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).
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.
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
See you next year.
THIS WEEK'S UPDATE
December 20, 2022|