It was an interesting week in the markets with a massive rally after Federal Reserve Chair Jerome Powell stated, “it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.” However, the release of stronger than expected job growth on Friday highlighted we are still in an odd time where good news (more new jobs than expected which means a more healthy economy) is bad news, as markets reacted negatively to the report.
Economy
- The U.S. equity market gained ground during the week ending December 2, despite a dip on Friday in response to a strong employment report. Investors’ confidence was buoyed by U.S. Federal Reserve (Fed) Chair Jerome Powell’s statement that the central bank may begin to ease its aggressive monetary policy tightening.
- Powell indicated that the Fed will most likely begin to slow the pace of interest-rate hikes at the Federal Open Market Committee’s (FOMC) meeting in mid-December, given recent data suggesting that inflation may be easing. However, he also commented that “we have more ground to cover. History cautions strongly against prematurely loosening policy. The truth is that the path ahead for inflation remains highly uncertain.”
- The Department of Labor reported that U.S. payrolls expanded by a larger-than-expected total of 263,000 in November, and the unemployment rate was unchanged at 3.7%. The leisure and hospitality, health care, and government sectors saw the largest job gains for the month. Average hourly earnings rose 0.6% and 5.1% in November and over the previous 12-month period, respectively.
- The robust employment data led to a downturn in the equity market on Friday amid concerns that the Fed will remain wary of inflation and be reluctant to ease its hawkish monetary policy. The continued tightness in the job market is forcing employers to increase employees’ compensation in an effort to attract and retain workers. The higher costs could have a negative impact on corporate earnings going forward.
Stocks
- U.S. equities were in positive territory. Telecommunications and consumer discretionary were the top performers, while energy and financials lagged. Growth stocks led value stocks and Small caps beat large caps.
- Global equities closed higher for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield decreased to 3.49% during the week.
- Global bond markets were in positive territory this week.
- Global government bonds led, followed by global corporate bonds and high yield bonds.
