Again, we hope that everyone had a joyful holiday week and you’re looking forward to great New Year’s Eve. Before we move on to 2023, we’ll take one final look at 2022, with the final week being largely illustrative of the year as a whole. While there was little in the way of new news on the economy, markets remained very volatile, with two “all-or-nothing” days this week. An “all-or-nothing” day can be defined as a day when net breadth (stocks advancing minus stocks declining) is above 400 or below -400. There have been 51 such days this year, the third most in the last 30 years, which illustrates the dramatic market movements we experienced. In addition, this week we saw big moves in some of the mega cap names, with Tesla falling 11% on Tuesday before rallying in the back half of the week (down 65% for the year) and Amazon closing the week below its COVID crash low (down 50% for the year). With all the volatility and the persistent declines, it has been a very tough year, no doubt. And while there continue to be signs of a slowing economy and potential for a recession, it’s important to remember that markets are forward looking and will generally bottom before the end of turbulent times. So, let’s look forward and toast to a happy, healthy and prosperous new year.
Economy
- The U.S. equity markets ended slightly lower for the week ending December 30, with turbulent price action throughout the week. It was a light week on economic data, but the data that was released was generally soft. Weakness in the housing market continues, small increases in unemployment claims and soft manufacturing data all played a part.
- Pending home sales in the US declined 4% moth-over-month in November of 2022, a sixth consecutive monthly decline and much worse than market forecasts of a 0.8% drop, as interest rates climbed, drastically cutting into the number of contract signings to buy a home. That pushed the Pending Home Sales Index to 73.9 the lowest reading since 2001, excluding the drop in the early months of the pandemic. Year-on-year, pending home sales went down 37.8%, with sales falling at double-digit paces in all four regions.
- The S&P CoreLogic Case-Shiller 20-city home price index in the US dropped by 0.8 percent from a month earlier in October 2022, a fourth consecutive month of decline, as demand for housing was hit by rising interest rates, low housing inventory, and stubbornly high inflation. Even with the monthly declines, home prices still rose by 8.6% year-over-year, however, this was the smallest increase since October 2020.
- The number of Americans filing new claims for unemployment benefits rose by 9K to 225K in the week ending December 24th, in line market expectations of 225K. Initial claims have been hovering at pre-pandemic levels for the last few months, remaining only slightly above the 2019 average of 218K. Meanwhile, continuing claims increased to 1,710K in the week ended December 17th, the highest level since February.
- The Federal Reserve Bank of Dallas’ general business activity index for manufacturing in Texas fell to -18.8 in December of 2022 from -14.4 in the prior month, pointing to the eighth contraction in the activity. The company outlook posted its tenth straight negative reading at -12.8 from -15.2, and the uncertainty outlook index fell to 15.6 from 20.4. Also, capital expenditures sank sharply to -2.1 from 9.3, while finished goods inventories turned negative to -3.3 from 2.2.
Stocks
- U.S. equities were in negative territory. Materials and Consumer Staples led the decline, while Financials and Energy outperformed. Growth stocks led value stocks and small caps beat large caps.
- International equities closed lower for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield increased 13 basis points to 3.87% during the week.
- Global bond markets were in negative territory this week.
- Government bonds led for the week, followed by high yield bonds and corporate bonds.
