Stocks ended higher last week as investors navigated the crosscurrents of a potential easing in future rate hikes and continued strength in the labor market.
The Standard & Poor’s 500 gained 1.13%, while the Dow Jones Industrial Average edged 0.24% higher. The Nasdaq Composite index improved by 2.09% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 1.68%.1,2,3
A Choppy Week
The week started lower on concerns about protests in China over its zero-Covid policy and comments by two Fed presidents that the Fed may continue its aggressive rate hike policy. Stocks then surged on Wednesday following remarks by Fed Chair Powell, confirming the central bank’s intention to slow the pace of interest rate increases, which may begin as early as this month.
Stocks buckled in early trading on Friday’s monthly employment report, which showed a higher-than-expected increase in new job growth and an above-expectations jump in wage growth. But stocks cut their losses by the end of the session to lock in a positive week.
Labor May Be Key
In a presentation to the Brookings Institution, Powell said that it might be time to begin moderating the pace of rate hikes. He cited several areas of progress in the inflation fight, including a deceleration in interest rate sensitive parts of the economy, such as housing and supply chain improvement. He also noted the price declines seen in goods and rents.4
But Powell suggested the labor market would need to cool down before the Fed could feel confident about making sustainable progress toward its two percent inflation target. November’s employment report showed robust job and wage growth, which indicated any cooling remained in the future.5
My Take: Fed Chair Powell is wrong (again).
If prices stabilize while the labor market remains robust, that is an IDEAL outcome, not a problem to be solved.
Furthermore, his apparent view that labor markets need to cool is a fundamental misreading of the Fed's mission. The Federal reserve is charged with maintaining price stability AND full employment. Notably, there is nothing in any federal regulation or law that tells the Fed that one is more important than the other.
Their goal should be to bring down inflation gradually, without putting an end to full employment. I'm not holding my breath waiting for the Fed to think that way and believe the odds of a recession next year remain higher than 50%.
And if a recession is the more likely scenario, the rational investment strategy remains to favor stocks with value characteristics over growth stocks and to favor the sectors that do better in recessions: consumer staples and healthcare.
This Week: Key Economic Data
Monday: Purchasing Managers’ Index (PMI) Composite. Factory Orders. Institute for Supply Management (ISM) Services Index.
Thursday: Jobless Claims. Purchasing Managers’ Index (PMI) Manufacturing.
Friday: Producer Price Index (PPI). Consumer Sentiment.
Source: Econoday, December 2, 2022
This Week: Companies Reporting Earnings
Tuesday: AutoZone, Inc. (AZO), MongoDB, Inc. (MDB).
Wednesday: Campbell Soup Company (CPB).
Thursday: Broadcom, Inc. (AVGO), Costco Wholesale Corporation (COST), Chewy (CHWY).
Source: Zacks, December 2, 2022
"In times of rapid change, experience could be your worst enemy."
– J. Paul Getty
IRAs Are One Tool in the Retirement Planning Toolbox
There are many tools to use to plan for retirement and an Individual Retirement Account is one of them. There are two kinds of IRAs, traditional IRAs and Roth IRAs. Here are some quick facts about both of them:
Tip adapted from IRS.gov6
Tips for Checking Your Blood Pressure at Home
Checking your blood pressure regularly is a great step to take to monitor your health, especially if you or someone in your family is prone to high blood pressure and hypertension.
In order to check your blood pressure at home, you will need a blood pressure monitor. Most at-home blood pressure monitors today have a digital screen, but some have a manual screen. No matter which one you have, here are some tips to keep in mind:
Tip adapted from WebMD7
A train moving as fast as it can go strikes a man’s hand, yet he is uninjured and the train goes off its tracks. Under what circumstances could this happen?
Last week’s riddle: A lone pine tree stands on a cliff. The wind is blowing from the east through the mountains. Which way do the tree’s leaves blow? Answer: Pine trees do not have leaves.
Footnotes and Sources
2. The Wall Street Journal, December 2, 2022
3. The Wall Street Journal, December 2, 2022
4. The Wall Street Journal, November 30, 2022
5. The Wall Street Journal, November 30, 2022
6. IRS.gov, July 11, 2022
7. WebMD, May 6, 2021
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Weekly Market Insights: Easing on Rate Hikes and Job Numbers Cheer Markets
December 05, 2022