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WEEKLY MARKET ROUND-Up Thru Nov 18th 2022: “Pause, Pivot or To the Moon?”

Hey everyone, as we begin to wrap up a very interesting year in the markets on the minds of most investors is where will inflation and interest rates take us in 2023. Get my take in this week’s Round-Up below.

Weekly Sound-Bites

Most of the major indexes gave back some of the previous week’s strong gains and closed modestly lower. Dispelled reports of a Russian missile strike on Polish territory sparked a brief sell-off on Tuesday, but trading volumes remained muted for much of the week. And US Markets will be closed on Thursday, November 24, in observance of the Thanksgiving holiday with Friday’s markets closing at 1 PM NY Time as the Christmas Black Friday Holiday shopping officially kicks into high gear. With only about 6 weeks before 2022 comes to a close we see all major asset classes taking a hit, from the S&P down over 16.8%, Bond Funds down about 17% and 60/40 Equity-Bond Funds down about 15.3%. And NASDAQ being heavily growth driven down about 29% thus far.

Industrial production fell unexpectedly in October, weighed down by weakness in the energy and materials sectors, and a gauge of manufacturing activity in the Mid-Atlantic region tumbled to its lowest level since May 2020. Prominent layoff announcements from top Tech leaders are starting to pick up as well. However, thus far, jobless claims over the previous week remained contained, with 222,000 workers filing for unemployment benefits—claims have remained within a tight range of 214,000 to 226,000 since late September. Inflation data showed core (less food and energy) producer prices in October remaining flat for the first time in two years.

The U.S. Treasury yield curve inverted further during the week, driving the inversion in the two-year/10-year curve segment—historically, a typical but not conclusive indicator of a coming recession—to its deepest level in over 40 years. Fed St. Louis President James Bullard said the Fed’s terminal policy rate should reach a minimum level of 5% and may need to go as high as 7% to achieve the central bank’s inflation objectives. However, Fed Fund futures suggest rates will peak around 5%-5.25% by next March and holding thru Q4 of ’23. This coming Dec FED FOMC meeting shows over an 80% probability of a 50 bps rate hike and as a reminder, we get November’s CPI data on Dec 13th so that will be a lot for the markets to chew on as we go into the end of 2022.
In the U.K. the economic forecasts suggested that the UK is already in a recession and called for the economy to shrink 1.4% in 2023—the sharpest contraction in Europe. In addition, inflation in the UK accelerated more than expected and hit a 41-year high of 11.1% in October, a significant increase from the 10.1% registered in September.

In Japan, the rate of core consumer price inflation rose to a 40-year high of 3.6% YoY, exerting fresh pressure on the BoJ, which nevertheless remains committed to its ultra-loose monetary policy stance. In addition, the Japanese economy unexpectedly contracted to an annualized 1.2% in the third quarter of the year, further weighing on sentiment. The country continued to struggle to regain momentum following the coronavirus pandemic, with concerns about a global economic slowdown posing a further headwind.

Meanwhile in China, investors appeared to balance enthusiasm over easing COVID restrictions against worries about rising cases. The seven-day average of new cases reached above 16,000 by the end of the week, with authorities recording a seven-month high of over 25,000 on Thursday alone. Late in the week, the People’s Bank of China injected liquidity into the banking system to stem a recent rise in bond yields.

Enjoy this Week’s Round-Up

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