Inflation Down, Rate Increases Slowing, Economy Strong (December 2 Market Recap)!

Inflation Down, Rate Increases Slowing, Economy Strong (December 2 Market Recap)!

Indices 

• Dow 34,429, +83 or +0.24%. 
• Nasdaq 11,461, +236 or +2.1%. 
• S&P 4,071, +46 or +1.1%. 
• USD10Y 3.691%, -18.5bp or -5.0%. 
• WTI Crude $80.21/bbl, +$4.39 or +5.79%. 

Inflation Down, PCE Confirms November CPI and PPI. 

The Headline Personal Consumption Expenditure (PCE) number fell to +6% year over Year (YoY) and the month over month number was up +0.3% for the third consecutive month. Core PCE also fell, registering at +5% YoY. The PCE is the Federal Reserve’s preferred inflation indicator and the drop in the YoY numbers confirm the declining inflation trend seen from both the Consumer Price Index and Producer Price Index reports from earlier this month. Markets rallied strongly on Wednesday’s print and on Fed Chairman Jerome Powell’s comments on rate hikes (see below).

Powell Says Appropriate to Decrease Size of Rate Hikes. 

On Wednesday, at a speech at the Brookings Institute in Washington D.C., Fed Chair Powell indicated that while inflation is still too high, and that rate hikes are not appropriate to consider at this time, it is appropriate to begin decreasing the size of the rate hikes, starting with the hike anticipated at their meeting later this month, December 13 and 14. Markets soared on this news combined with the PCE data. The probability of a 50bp rate hike in December now sits slightly higher at 77% vs 75.8% a week ago and vs 51.5% a month ago.

Economy Strong 

While manufacturing activity appears to be weakening across the county and home prices are declining due to higher mortgage rates, the labor market and the economy as a whole continue to show strength. Third quarter annualized GDP printed at +2.9% vs the first and second quarter prints of –1.6% and –0.6% respectively. November Non-Farm Payrolls added another 263,000 jobs and the unemployment rate remained unchanged at 3.7%. For now, at least, the economy has weathered 375 bp of rate hikes this year and continues to flourish. With the Fed decreasing the size of its hikes and perhaps either pausing or completing their rate hike cycle by May, could it be that the FOMC might actually execute the improbable, elusive, and much talked about “soft landing?!” 

Next Week 

It is a quiet week in December next week and none of the data scheduled to be released should move the markets (famous last words). 

Economic Calendar

• Monday – November S&P U.S. Services PMI, ISM Services Index. 
• Tuesday – Nothing scheduled. 
• Wednesday – Nothing scheduled. Earnings: Campbell’s Soup (CPB). 
• Thursday – Initial Jobless Claims. Earnings: Broadcom (BRCM) and Costco (COST). 
• Friday – University of Michigan Consumer Sentiment (prelim) and 5-year Inflation Expectations (prelim). Earnings: Oracle (ORCL). 

If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review. 

December 2 Daily Trading Recap… 

Monday – Dow –497 to 33,849 Nasdaq –176 to 11,049, S&P -62 to 3,963, USD10Y +1.2bp to 3.703% 

• All eleven S&P sectors traded down today, led lower by Real Estate, Energy, and Materials. 
• Fears of continued lockdowns and social unrest in China pressured the markets today. 

Tuesday – Dow +3 to 33,852, Nasdaq -65 to 10,983, S&P -6 to 3,957, USD10Y +4.5bp to 3.748%. 

• Six of eleven S&P sectors traded down today, led lower by Technology, Utilities, and Consumer Discretionary. 
• November Consumer Confidence just beat expectations at 100.2 vs 100.0 but was down vs October’s 102.2 print. 
• September S&P CoreLogic Case Schiller U.S. 20-City Price Index fell for the third consecutive month. Prices were down 1.2% in September. 

Wednesday – Dow +737 to 34,589, Nasdaq +484 to 11,468, S&P +122 to 4,080, USD10Y -4.5bp to 3.703%. 

• All eleven S&P sectors traded higher today, led by Technology, Communication Services, and Consumer Discretionary. 
• Markets soared today as Fed Chair Jerome Powell intimated that the size of rate hikes if not the pace of rate hikes should begin to moderate. The Fed Chair did warn that talk of cutting rates was premature and that inflation remains stubbornly high. 
• The October Job Openings and Labor Turnover Survey (JOLTS) showed a decrease in job openings to 10.3 million vs last month’s 10.7 million print. 
• The November ADP Employment Report showed 127,000 jobs created, a sharp decline from October’s 239,000. 
• Q3 Real GDP (revised) came in at 2.9% annualized, up from a 2.6% preliminary estimate. 
• November Chicago PMI was horrible at 37.2 vs expectations of 47 and vs last month’s 45.2. Any number below 50 indicates contraction. 
• The Fed Beige Book showed economic activity flat to slightly up across the 12-district survey.  

Thursday – Dow -194 to 34,395, Nasdaq +14 to 11,482 S&P -3 to 4,076, USD10Y –17.4bp to 3.529% 

• Seven of eleven S&P sectors traded lower today, led lower by Financials, Consumer Staples, and Energy. 
• Jobless claims fell to 225,000 claims vs 235,000 expected and last week’s slightly revised higher print of 241,000 (originally 240,000 claims). Continuing claims rose 57,000 to 1.6 million, their highest level since February. 
• October MoM Headline PCE was +0.3% for the third consecutive month and YoY PCE dropped to +6%, lower than the +6.3% expected by economists. 
• October MoM Core PCE was +0.2%, lower than the +0.3% expected and beating last month’s +0.5% handily. That dropped the YoY number to +5% vs +5.1% last month.  
• Both S&P U.S. Manufacturing PMI and ISM Manufacturing Index were solidly in contraction territory for November, with the former recording 47.7 and the latter 49.0%. 

 Friday – Dow +34 to 34,429, Nasdaq -21 to 11,461, S&P -5 to 4,071, USD10Y –2.3bp to 3.506%. 

• Six of eleven S&P sectors traded down today led lower by Energy, Technology, and Utilities. 
• November Non-Farm Payrolls added 263,000 jobs, considerably above the 200,000 estimate but below last month’s 283,000 adds. 
• The November Unemployment Rate remained unchanged at 3.7%.

If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review. 

Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.