Friday, December 30, 2022
U.S. and International Equities
Markets Mostly Lower
The major markets finished lower to end a tumultuous year as market participants remain concerned about the economic and profitability landscape. Investors have been thwarted by the Federal Reserve’s (Fed) pushback to a potential pivot, given weakening economic conditions.
Earnings should begin to get more attention next week as reporting season approaches. Seven of 11 S&P 500 sectors are expected to see earnings contract in this coming earnings season, making overall S&P 500 earnings growth unlikely. Only the energy, industrials, real estate, and utilities sectors are expected to show positive growth.
Fixed Income Lower as Yields Increase
The Bloomberg Aggregate Bond Index finished the week lower as yields increased. In addition, high-yield corporate bonds, as tracked by the Bloomberg High Yield index, finished the week lower.
U.S. Treasury yields have moved higher across the curve. Front and long-end yields have risen 10 to 20 basis points (bps) or 0.10% to 0.20%, respectively, over the last week, likely driven by nagging global inflation, unknown impacts from China reopening, and low trading volume in the Treasury market.
Commodities Mostly Higher as Natural Gas Prices Selloff
Oil finished the week higher while natural gas prices sold off this week. Warmer-than-expected weather in Europe caused this week’s selloff in natural gas given a volatile year for the commodity. In addition, European natural gas prices fell this week to levels not seen since before the Eastern European crisis. The major metals, including gold, silver, and copper finished the week higher.
Economic Weekly Roundup
U.S. Home Prices
Home prices in October were up over 9% from the previous year, rising at a slower pace as borrowing costs rise and inflation crimps household budgets. The October Case-Shiller National Home Price Index fell for the fourth consecutive month but the index is still above levels in March 2022. A low supply of homes is supporting home prices, despite declining demand and rising borrowing costs.
U.S. Personal Consumption
The Fed’s preferred inflation metric, the Personal Consumption Expenditure (PCE) deflator, fell last month. November core inflation eased to 4.7% from a year ago, after rising 5% in October. Adjusted for inflation, consumer spending was unchanged from October, as consumers start to retrench during a period of economic uncertainty. Real disposable income rose 0.3% from a month ago, the second consecutive monthly increase in real income
U.S. Consumer Sentiment
University of Michigan’s Sentiment Index improved in December, but is still below October levels, as consumers are unsure about the near-term economic landscape. Expected inflation over the next year fell to the lowest since June 2021, consistent with the data that shows inflation is past peak. Long-term inflation expectations fell below 3% again, after inching up the last two months. Labor market conditions appear weakening as a rising number of consumers expect unemployment to increase over the next year.
Weekly and Monthly Employment Report
Both continuing claims for unemployment insurance as well as initial claims for the latest week came in above economists’ expectations. Labor market conditions remain tight even though there are some signs of slowing job growth, increasing layoffs, and higher unemployment.
The following economic data and potentially market-moving events are slated for the week ahead:
- Tuesday: S&P Global PMI Manufacturing (Dec), construction spending (Nov)
- Wednesday: BEA Total Light Vehicle Sales (Dec), ISM Manufacturing (Dec), JOLTS Job Openings (Nov), FOMC Minutes
- Thursday: Weekly initial and continuing unemployment claims, trade balance (Nov), PMI Composite (Dec), S&P Global PMI Services (Dec)
- Friday: Hourly earnings (Dec), average workweek (Dec), manufacturing payrolls (Dec), nonfarm payrolls (Dec), private nonfarm payrolls (Dec) December Unemployment report (Dec), durable orders (Nov), factory orders (Nov), ISM Services (Dec)
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