Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
US equities were lower last week, more than reversing the prior week's gains. Through Friday, the S&P had declined in six of the prior seven sessions, remaining largely in retreat after hitting a recent high above 4000 after Chair Powell's remarks on November 30th. Treasuries were mostly weaker last week, with the 10-year yield moving down near 3.40 percent before finishing the week closer to 3.60 percent. The dollar strengthened, gold was little-changed and oil was down, with WTI crude posting its worst week since April amid rising concerns about the weakening economic landscape.
Stocks are falling as the "good news is bad news" mantra takes hold of global economy. Reports that show economic strength and resilience raise the specter of a more aggressive Fed, thereby raising the odds of a policy mistake. Recession concerns are also on the rise for a number of reasons. The yield curve is near its most inverted point in a generation, earnings continue to be revised downward, and management commentary has been decidedly cautious.
Last week we received a couple data points on inflation. A slightly hotter-than-expected November Producer’s Price Index, or PPI, contradicted some other softer inflation indicators, including the University of Michigan consumer sentiment report that showed one-year inflation expectations at their lowest levels in 15 months.
Looking outside the United States, China's well-telegraphed easing of Covid restrictions failed to generate any noticeable boost for the US, with expectations that normalization will be bumpy and Covid will remain a drag on growth. In other international news, The Group of Seven major powers, the European Union and Australia last week agreed to a $60 per barrel price cap on Russian seaborne crude oil.
We have a full economic calendar this week. All eyes will be on the November Consumer Price Index, or CPI, a popular gauge of inflation, out on Tuesday morning. Economists expect the report to show inflation on the decline, compared to a year ago, but to remain well above the Fed’s 2 percent target. On Wednesday, we get the December 14th FOMC rate decision with its Summary of Economic Projections and Powell’s press conference. Future’s markets are set on a half percent rate hike, following four consecutive three-quarter percent hikes. Market participants are expecting the Fed to continue to push its "higher for longer" messaging. Then on Thursday we will get November retail sales as well as the New York and Philadelphia Fed manufacturing indices.
As always, we will be watching and reporting back to you next week. Thank you.