It was another tough week for equity markets, with declines across most major markets. One exception was China & Hong Kong, where the Chinese government appears to be loosening COVID restrictions for the first time since the outbreak began almost three years ago. On the domestic front, we received mixed data on the services sector from S&P Global and the Institute for Supply Management (ISM), which was certainly not enough to quell growing recession concerns. In addition, the Producer Price Index (PPI) for final demand reported on Friday morning came in above expectations. Looking forward to next week, we have major news on Tuesday with the release of November Consumer Price Index data followed by the Federal Reserve interest rate decision on Wednesday. With both major announcements, next week is likely to be more volatile than normal.
Economy
- The U.S. equity market lost ground during the week ending December 9, with three straight days of declines to start the week. We received mixed data from S&P Global and ISM on the services sector early in the week followed by a higher than expected reading on inflation from the PPI report on Friday.
- The ISM Services PMI unexpectedly jumped to 56.5 in November of 2022, rebounding from a more than 2-year low of 54.4 hit in October and beating market forecasts of 53.3. Business activity increased faster (64.7 vs 55.7) and employment rebounded (51.5 vs 49.1), prompted by a new fiscal period and the holiday season. Also, price pressures eased (70 vs 70.7), inventories shrank less (47.9 vs 47.2) and supplier deliveries continued to slow (53.8 vs 56.2), with increased capacity and shorter lead times accounting for an improvement in supply chain and logistics performance.
- The S&P Global US Services PMI was revised slightly higher to 46.2 in November of 2022 from a preliminary of 46.1 but continued to point to a fifth straight month of falling services activity and the second-sharpest decline since May of 2020. There was a steeper decrease in new orders, as domestic and foreign client demand remained weak. Efforts to entice customer spending were reflected in the slowest rise in output charges since October 2020. Also, softer upticks in selling prices followed easing cost pressures, as input prices increased at the slowest rate in almost two years.
- The Producer Price Index for final demand in the US rose 0.3% month-over-month in November of 2022, the same as an upwardly revised 0.3% increase in October but above market forecasts of 0.2%. Cost of services went up 0.4%, cost of goods edged up 0.1%, while gasoline prices dropped 6%. Compared to the same month in 2021, producer prices were up 7.4%, the smallest increase since May last year, but higher than expectations of 7.2%.
- The number of Americans filing continuing claims for unemployment benefits rose by 62 thousand to 1.671 million on the week ending November 26th, increasing for the eighth consecutive week and well above forecasts of 1.600 million. It was the highest number since early February, reinforcing that the labor market is gradually cooling and Americans who are losing their job are having more trouble finding a new one.
Stocks
- U.S. equities were in negative territory. Energy and Communication Services led the decline, while Utilities and Healthcare outperformed. Value stocks led growth stocks and large caps beat small caps.
- International equities closed lower for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased 6 basis points to 3.56% during the week.
- Global bond markets were in negative territory this week.
- Government bonds led for the week, followed by corporate bonds and high yield bonds.
