Week in Review
Asset prices continued to rise last week, in stark contrast to last year’s broad selloff. The NASDAQ jumped 4.8%, leading gains in the equity markets. The S&P 500 rose 2.7%, and the Dow Jones Industrial Average gained 2.0%. The US Dollar index fell 1.6%, helping to spur gains in commodities and cryptos. Gold gained almost 3%, crude oil soared 8%, and Bitcoin rose a whopping 21%., reaching its highest level in more than 2 months. Treasury yields continued to fall, too, with 10 year Treasury notes rising 0.5%.
Consumer prices continued to slow in December, falling to an annual growth rate of 6.5%, down from 7.1% the prior month. Energy and other commodities are responsible for the contraction, as services prices rose to new cycle highs during the month. That may not be much of a surprise, but it is a disappointment for those hoping to see the Federal Reserve put a stop to interest rate hikes. FOMC members in recent days have shown continued support for tighter monetary conditions, with policy hawk Rafael Bostic saying he believes rates will need to stay above 5% for “a long time”.
GDP rebounded in the third quarter of 2022 after two consecutive quarters of negative growth to start the year. A recession last year was never confirmed by the National Bureau of Economic Research, but economists widely expect one to occur in 2023.
Measures of inflation remain well above the Federal Reserve’s 2% target, but CPI has decelerated for 3 straight months, an encouraging sign. Unemployment remains historically low at 3.5%, and consumer spending, measured by retail sales, remains robust.
It’s a holiday-shortened week as the United States celebrates Martin Luther King, Jr. on Monday. We’ll only have the New York Fed’s manufacturing survey to look at on Tuesday, before producer prices, retail sales, industrial production, the NAHB housing market index, and the Fed’s Beige Book will keep us busy on Wednesday. Housing data will be in focus to close the week, with housing starts on Thursday and existing home sales on Friday. Fourth quarter earnings reports are also in full swing. The Financial and Industrial sectors dominate the schedule.