Stocks retreat as better than expected economic data dampens hope that the fed might slow its rate hiking magnitude
- Markets took a breather this week and gave up some of the gains from the past 2 weeks, pushing the DJIA out of its technical bull market run and leaving investors wondering if the Santa Rally will come true this year
- While there was not anything per se that pushed markets south, there was an overall malaise that enveloped Wall Street as traders started to lose hope that the Fed would slow down its big rate hikes
- Ironically, it was better-than-expected news that pushed markets south, especially a stronger-than-expected ISM Non-Manufacturing Index for November
- The 2-year Treasury yield rose five basis points to 4.34% and the 10-year note rose six basis points to 3.57%
- Ten of the 11 S&P 500 sectors lost ground, with Energy losing the most, followed by Communication Services, both down more than 5%
- Declining oil prices arrived this week, with WTI crude dropping more than 10% this week and ending just north of $71/barrel
- Fidelity International Wins China Mutual-Fund License – Asset manager follows BlackRock, Neuberger Berman in getting approval to manage money for individual Chinese investors
- The FTC this week took one of its biggest swings ever against a big technology company (Microsoft Corp. MSFT) and sued to stop the planned $75 billion acquisition, setting the stage for a court challenge over a deal the antitrust agency said would harm competition.
Weekly Market Performance
| Close | Week | YTD | |
|---|---|---|---|
| DJIA | 33,476 | -2.8% | -7.9% |
| S&P 500 | 3,934 | -3.4% | -17.5% |
| NASDAQ | 11,005 | -4.0% | -29.7% |
| Russell 2000 | 1,797 | -5.1% | -20.0% |
| MSCI EAFE | 1,979 | -0.2% | -15.3% |
| *Bond Index | 2,089.22 | +0.29% | -11.6% |
| 10–Year Treasury Yield | 3.57% | +0.06% | +2.0% |
*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.
Stocks Decline as Economy Sees Good News
U.S. equity indices retreated this week, eliminating much of the gains from the previous two weeks. Strong economic data seemed to dampen expectations that the Fed would slow down its pace and magnitude of rate hikes. When the week was over, the DJIA fell out of its technical bull market (having advanced 20% last week from the September lows), the S&P 500 turned in its worst week in 5 weeks and the smaller-cap Russell 2000 turned in its worst week since September.
Of the 11 S&P 500 sectors, only Health Care was positive, with a meager gain of just 0.22%, whereas Communication Services and Energy both gave up more than 5%. The Energy sector is now down about 10% over the last month, driven mostly by falling oil prices that have not seen these prices since the early part of 2022.
Of the economic news received by Wall Street this week, most of it was positive, including:
- The Producer Price Inflation rising 7.4% on a year-over-year basis
- Improvements to the University of Michigan's survey of consumer sentiment for December
- A big surprise in the Institute for Supply Management's index of Services Sector activity, which rose to 56.5, near its highs over the past several months
Inflation Easing?
On Friday, the U.S. Bureau of Labor Statistics reported that the Producer Price Index for final demand advanced by 0.3% in November. For perspective, final demand prices rose 0.3% in October and September. The final demand index increased 7.4% for the 12 months ended in November.
In November, most of the increase in the index for final demand is attributable to a 0.4-percent advance in prices for final demand services. The index for final demand goods inched up 0.1 percent.
Prices for final demand less foods, energy, and trade services increased by 0.3 percent in November after rising 0.2 percent in October. For the 12 months that ended in November, the index for final demand less foods, energy, and trade services increased by 4.9 percent.
Consumer Sentiment Rises
The University of Michigan reported,
"Consumer sentiment rose 4% above November, recovering most of the losses from November but remaining low from a historical perspective. All components of the index lifted, with one-year business conditions surging 14% and long-term business conditions increasing a more modest 6%. Gains in the sentiment index were seen across multiple demographic groups, with particularly large increases for higher-income families and those with larger stock holdings, supported by recent rises in financial markets. Sentiment for Democrats and Independents rose 12% and 7%, respectively, while for Republicans it fell 6%. Throughout the survey, concerns over high prices—which remain high relative to just prior to this current inflationary episode—have eased modestly.
Year-ahead inflation expectations improved considerably but remained relatively high, falling from 4.9% to 4.6% in December, the lowest reading in 15 months but still well above 2 years ago. Declines in short-run inflation expectations were visible across the distribution of age, income, education, as well as political party identification. At 3.0%, long-run inflation expectations has stayed within the narrow (albeit elevated) 2.9-3.1% range for 16 of the last 17 months."
New Orders for Manufactured Goods Up 12 of 13 Months and in October
On Monday, the U.S. Census Bureau announced the October full report on manufacturers' shipments, inventories and orders:
- New orders for manufactured goods in October, up twelve of the last thirteen months, increased $5.8 billion or 1.0% to $556.6 billion. This followed a 0.3% September increase.
- Shipments, up nineteen of the last twenty months, increased $3.9 billion or 0.7% to $554.8 billion. This followed a 0.3% September increase.
- Unfilled orders, up twenty-six consecutive months, increased $6.9 billion or 0.6% to $1,144.0 billion. This followed a 0.5% September increase.
- The unfilled orders-to-shipments ratio was 6.03, unchanged from September.
- Inventories, up two consecutive months, increased $4.0 billion or 0.5% to $805.3 billion. This followed a 0.1% September increase.
- The inventories-to-shipments ratio was 1.45, unchanged from September.
New Orders
- New orders for manufactured durable goods in October, up seven of the last eight months, increased $3.0 billion or 1.1% to $277.4 billion.
- Transportation equipment, up six of the last seven months, led the increase, $2.1 billion or 2.2% to $97.7 billion.
- New orders for manufactured nondurable goods increased $2.8 billion or 1.0% to $279.3 billion.
Shipments
- Shipments of manufactured durable goods in October, up seventeen of the last eighteen months, increased $1.1 billion or 0.4% to $275.5 billion, unchanged from the previously published increase.
- Machinery, up nineteen of the last twenty months, led the increase, $0.6 billion or 1.4% to $38.8 billion.
- Shipments of manufactured nondurable goods, up nineteen of the last twenty months, increased $2.8 billion or 1.0% to $279.3 billion.
- Petroleum and coal products, up two consecutive months, drove the increase, $2.9 billion or 4.4% to $69.1 billion.
Sources
census.gov; bls.gov; umich.edu; msci.com; fidelity.com; nasdaq.com; wsj.com; morningstar.com;