Weekly Market Update

It was a surprisingly calm week for markets as despite the S&P 500 bouncing almost 6% last week, stocks gave back only a small portion of those gains and for the first time in 2022, no day this week saw the S&P 500 rise or fall +1%. On Tuesday, stocks did attempt to build on the prior week’s strength as the October producer price index (PPI) echoed the prior week’s CPI report and came in softer than expected, which added to hopes of peak inflation. However, there was a flood of speeches from the Federal Reserve, sixteen to be exact, and investors were constantly reminded that the Fed remains committed to tightening financial conditions and upside risks to interest rates persist.

Heading into a shortened trading week that culminates with Black Friday, we wanted to highlight the consumer. Throughout the week, Fed speakers continued to highlight that the US consumer remains strong, but despite recent earnings from retailers coming in better than expected (except for Target) there are cracks building. For example, per new data from the Federal Reserve Bank of New York, credit card balances in the third quarter rose 15% from a year earlier, the largest annual jump in more than 20 years and just shy of all-time highs. Furthermore, the interest rate on that credit card debt is notably expensive (see chart below) and near the highest levels since 1995 (per data from FRED). While retail sales continue to grow, consumers are clearly tapping into credit and the personal savings rate has fallen from 7.5% entering the year to only 3.1% today. The National Retail Federation (NRF) is predicting holiday spending to rise 6% to 8% year-over-year and perhaps that indeed comes to fruition, but we wonder how long it will take before the Fed begins to recognize that the US consumer is coming under pressure.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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