Market Update 12/05/22

Mark Amstislavskiy

Markets were mixed in the week of Nov. 29 through Dec. 5 as investors analyzed jobs data and comments from Federal Reserve Chair Jerome Powell.

Major indexes were mostly down on Tuesday as COVID-19 protests in China continued, threatening the economic and political stability of the world’s second largest economy. The Dow Jones Industrial Average inched up 0.01%, while the Nasdaq composite and S&P 500 lost 0.6% and 0.06%, respectively.

Economic data released on Tuesday also showed a decrease in home prices, as well as lower consumer confidence for the second month in a row. While the data suggests that higher interest rates are beginning to take a toll on the economy, investors are hopeful that this may induce a shift toward less restrictive monetary policy.

Markets booked large gains on Wednesday after Powell indicated in a speech that a smaller 50-basis-point increase is likely for the next meeting.

The Dow, the Nasdaq and the S&P 500 advanced 2.2%, 4.4% and 3.1%, respectively, with the gains propelling the Dow into a bull market. All three indexes have ended the last two months with gains.

“Today’s speech gives more hope for the possibility of that elusive soft landing,” Hank Smith, head of investment strategy at Haverford Trust, said. “From the market’s perspective, there’s the chance of a soft landing as opposed to a hard landing that’s a traditional recession.”

Thursday saw mixed results as data showed an increase in household spending for October accompanied by a decrease in personal consumption expenditures. This offered contradictory signals about the state of inflation.

This sent the Dow and S&P 500 down 0.56% and 0.1%, respectively, while the Nasdaq inched up 0.1%. Bond prices continued to rise, with the yield on 10-Year Treasury notes falling to 3.525%.

Major indexes were mostly stagnant on Friday, despite a relatively strong jobs report. The labor force participation rate fell to 62.1% and average hourly earnings increased 0.6%.

“The surprisingly high increase in hourly earnings may spook investors bracing for the Fed to react with another aggressive rate increase,” Bryce Doty, a senior portfolio manager at Sit Investment Associates Inc., wrote.

The Dow rose 0.1%, while the Nasdaq and the S&P 500 lost 0.2% and 0.1%, respectively. All three indexes still ended the week with gains.

Markets took a turn on Monday after new metrics suggested strong service sector performance and increasing factory orders.

In addition to Friday’s strong jobs report, evidence of economic resilience is seen as bad news for markets because it means the Fed may need to keep rates higher for longer. The Dow, the Nasdaq and S&P 500 shed 1.4%, 1.9% and 1.8%, respectively.

With inflation remaining as the Fed’s primary concern, economic data is viewed through the lens of how it will impact interest rate decisions. Considering this, investors will await the Fed’s meeting on Dec. 14 to determine if the central bank will transition toward less restrictive monetary policy.