Market Update: December 9, 2022

Welcome to the Weekly Market Update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth, and here’s what happened in the market this week.

 

In the week following Jerome Powell’s press conference, the market is showing a little bit more weakness with labor market data reporting a bit stronger than expected, reigniting fears of another 75 basis point hike from the Fed later next week. Whether we go back to retest those lows established in early October or finally break from the 12-month downtrend is still up in the air.

In the news this week, the labor market remains very tight despite layoffs from the large tech companies. The FTC sues Microsoft, seeking to block the acquisition of video game giant Activision. And Chinese Apple supplier Foxconn wrote a letter to party leaders imploring them to ease the zero-covid policy or lose power in the global supply chain and the world economy. The letter appears to have had a positive effect.

Next Wednesday, December 14th, marks the last rate hike of the year. The market currently anticipates a 90% chance of a smaller, 50 basis point hike, breaking the trend from the last 4 hikes. There is a small, anticipated chance of a 5th 75 basis point hike. Essentially this means the market should not be significantly affected by a 50 basis point hike itself but could be negatively effected should the Fed continue to be aggressive. I suspect that the Fed will do as anticipated but this also means the market will not necessarily react to interest rate changes itself but the language Powell uses in the press conference.

If the assumption is that 75 point hikes are over and we’re slowing down the pace of increases, attention should now turn to the anticipated peak rate and the number of months we stick with that rate. Currently, the market is anticipating that peak rate finding a spot somewhere around 5% through July of 2023. Anything that results in higher rates for longer would be viewed negatively by the market.

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Sources:

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved December 9, 2022, from FactSet Database.

2.FactSet Research Systems. (n.d.). Policy Rate Tracker (Markets). Retrieved December 9, 2022, from FactSet Database.

FactSet Research Systems. (n.d.). Policy Rate Tracker (Markets). Retrieved December 9, 2022, from FactSet Database

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