Fed Expected to ‘Step Down’ to 50 Basis Point Hike
Following two straight weekly gains, the S&P 500 finished the week lower on inflation worries and caution ahead of this week’s Federal Open Market Committee (FOMC) meeting.
Performance for Week Ending 12.9.2022:
The Dow Jones Industrial Average (Dow) finished down 2.77%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 3.68%, the Standard & Poor’s 500 Index (S&P 500) fell 3.37% and the Nasdaq Composite Index (NASDAQ) shed 3.99%. Sector breadth was negative with all 11 of the S&P sector groups closing lower. The Energy sector (-8.40%) was the worst performer followed by Communication Services (-5.39%) and Consumer Discretionary (-4.48%).
||Closing Price 12/9/2022
||Percentage Change for Week Ending 12/9/2022
||Year-to-Date Percentage Change Through 12/9/2022
*See below for Index Definitions
MARKET OBSERVATIONS: 12/5/22 – 12/9/22
Following two straight weekly gains, the S&P 500 finished the week lower on inflation worries and caution ahead of this week’s Federal Open Market Committee (FOMC) meeting. Last week, the Labor Department reported that the producer price index (PPI) rose 0.3% during the month of November and was up 7.4% from a year ago. While the year-over-year pace is down sharply from the 11.7% gain reached in March, it still remains well above the 10-year average of 2.6% and underscores that the Fed still has some work to do. Another key inflation report will be released this Tuesday with the Labor Department reporting November consumer price data. According to Bloomberg, the consumer price index (CPI) is expected to rise by 0.3% on a month over month basis and by 7.3% from a year earlier, but down from 7.7% pace in October.
Fed Meeting: At the conclusion of Wednesday’s FOMC meeting, the central bank is expected to hike the fed funds rate by 50 basis points to a range of 4.25-4.5%. Since it is a quarter-end meeting the Fed will also release an updated Summary of Economic Projections report, which will include a new ‘dot plot’ and give us some clues on the path forward. In recent weeks, the Fed has been stressing that investors should be worried less about the speed of rate hikes and more about the destination, so it will be interesting to see where the terminal rate comes in on the dot plot. According to Fed Fund Futures, the terminal rate is expected to peak at just under 5% by May of 2023.
The Week Ahead: The two day FOMC meeting will take center stage in the week ahead, with the Fed largely expected to hike rates by 50 basis points at the meetings conclusion. The Fed will also release its latest economic projections. On the data calendar, in addition to Tuesday’s consumer price index report, investors will focus on the November retail sales report, weekly jobless claims, and the Philly Fed Business Outlook report for December. The earnings calendar will remain on the backburner with only 5 members of the S&P 500 scheduled to release results during the week, including tech heavy weights Oracle and Adobe.
— By Michael Schwager, Chief Market Strategist, Managing Director
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
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