First and foremost we hope that everyone is having a great holiday week, enjoying family and friends, and taking some time to relax. It has been quite a year in financial markets, with considerable volatility throughout. One clear measure of this volatility is the amount of 1% moves in the S&P 500 this year, with 120 days moving by at least this amount. This is the third highest number of days ever recorded (since 1952 when the NYSE moved to a five-day trading week), only falling behind 2008 (134) and 2002 (126). So if you felt like this was a volatile year, that’s because it was. This week was no exception, as markets were mixed due to continued recession concerns and pressure in the housing market. And while a few good reports came throughout the week, with better-than-expected consumer sentiment data and Core PCE in line with expectations, it was not enough to turn the tide. With only four more trading days this year and New Year’s Eve around the corner, let’s toast to ending the year on a strong note.
Economy
- The U.S. equity market lost ground during the week ending December 23, with choppy price action throughout the week. We saw more good data on the inflation front as Core PCE was in line with expectations, however, weakness in the housing market and durable goods orders kept pressure on equities.
- The core PCE annual rate, which is the Federal Reserve’s preferred gauge of inflation, fell to a four-month low of 4.7% in November of 2022 from 5% in the prior month, in line with market forecasts. Prices went up by 0.2% month-over-month in November of 2022, following an upwardly revised 0.3% increase in the prior month.
- The University of Michigan consumer sentiment for the US was revised higher to 59.7 in December of 2022 from a preliminary of 59.1. The gauge for expectations was revised higher to 59.9 from 58.4 while the current conditions subindex was revised lower to 59.4 from 60.2. Meanwhile, inflation expectations for the year were revised lower to 4.4% from 4.6% in the preliminary estimate and the 5-year outlook was revised lower to 2.9% from 3%.
- Building permits in the United States tumbled 10.6 percent from a month earlier to a seasonally adjusted annual rate of 1.351 million in November 2022, the lowest level since June 2020 and compared to a preliminary estimate of 1.342 million, revised data showed. Permits, a proxy for future construction, have been falling as soaring prices and rising mortgage rates hit demand and activity.
- Durable goods orders in the US, which measure the cost of orders received by manufacturers of goods meant to last at least three years, fell by 2.1% month-over-month in November 2022. It was the sharpest decrease since April 2020 and well above market forecasts of a 0.6% decline, swinging from the downwardly revised 0.7% increase in the prior month. Orders fell sharply for transportation equipment (-6.3% VS 1.9% in October) amid declines in nondefense aircraft and parts (-36.4% vs 4.7%) and defense aircraft and parts (-8.6% vs 18.2%).
Stocks
- U.S. equities were in negative territory. Consumer Discretionary and Technology led the decline, while Energy and Utilities outperformed. Value stocks led growth stocks and small caps beat large caps.
- International equities closed higher for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased 27 basis points to 3.75% during the week.
- Global bond markets were in negative territory this week.
- High yield bonds led for the week, followed by corporate bonds and government bonds.
