Weekly Market Update

After rallying over 15% from the October lows through the end of November, and despite favorable seasonality, the S&P 500 has started December with weakness as fears of slowing economic growth have risen and important inflation and policy announcements loom large next week.  Investors now find themselves asking if a “Santa Claus rally”, or a sustained rise in the stock market heading into Christmas, might be in the offing.  Ultimately, while there was admittedly important inflation and service data released this week, we believe the first three days of next week will decide the direction of bond and stock markets heading into 2023.

Tuesday morning’s consumer price index (CPI) for November will be highly anticipated as investors are looking for 7.3% year-over-year headline inflation, down from 7.7% in October.  Friday saw the producer price index (PPI) come in hotter than expected, but most recent inflation indicators are slowing such as the Manheim Used Vehicle Index falling for a sixth straight month or last week’s Case Shiller Home Price Index falling month-over-month in September for the first time since 2018.  Furthermore, while food prices have remained elevated, energy prices have notably declined with gas and WTI crude prices below levels seen prior to Russia’s invasion of Ukraine.  After the last CPI report on November 10th, the S&P 500 rallied over 5% when inflation came in materially below expectations (7.7% vs 8.0% consensus) and we anticipate a volatile market session on Tuesday.  On Wednesday, the Federal Reserve will provide its last meeting announcements of 2022 and they are expected to hike short-term interest rates another 50 basis points.  Fed Chair Jerome Powell will hold a press conference after those 2PM meeting announcements and we expect choppy trading as the market reacts to Mr. Powell’s remarks around combating inflation, the economy, and the trajectory of future Fed policy decisions.  Ultimately, we strongly believe that these two market events will decide how festive investors are feeling heading into the new year.

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

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