Investment Committee Meeting Highlights
Markets continued their rally from October, this time fueled by a better-than-expected inflation report that showed the Consumer Price Index showing yearly inflation fell from 8.2% to 7.7%. October’s inflation report was the first time that headline and core, which excludes food and energy, yearly increases both declined with services prices, which had consistently marched upward throughout the year, finally showing some signs of slowing. All said and done, the S&P 500 gained 5.59%, which was a bit overshadowed by the significant outperformance of global equities, with the MSCI EAFE and Emerging Markets indices gaining 11.26% and 14.83%, respectively.
Also responding to the inflation report, yields across much of the yield curve declined. Each major maturity longer than one year declined over the course of the month, providing some respite to fixed income markets. During the month the Bloomberg US Aggregate gained 3.68%, though the yield curve remains inverted when looking at yields on both the 10 year minus 2 year and 10 year minus 3 month, as the market continues to expect economic weakening next year.
Economic data continues to be mixed. Consumers again demonstrated their ability to drive the economy forward with retail sales rising 1.3% in October, the report showed strong vehicle sales helped drive some of the gains, though excluding vehicles with retail sales still rose 0.9%. On the other hand, industrial production fell 0.1% in October, the second drop in three months. Supply chains are becoming less of a headache, with freight costs continuing to decline, though slowing demand from rising rates may be dampening those gains.
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The US equity market had another strong month in November, continuing the trend from October. Prices have risen even though the prospects of increased earnings in 2023 has not. Reinforced by Chairman Powell’s comments this week, the Federal Reserve has indicated the pace of its rate hikes will be less than previously anticipated by the markets. All indications that the Fed is slowing its hawkish stance have been positive for equities.
The NBER (National Bureau of Economic Research) has key components to determine if we are in a recessionary period, such as retail sales, nonfarm payrolls, industrial production and more. Through September, retail sales resumed strong gains, while industrial production, which has been one or the more bearish of the major indicators the NBER uses, weakened. Despite some weakening in industrial production and labor, the overall major categories remain fairly strong. Also, large layoffs by individual tech companies have garnered significant headlines lately. However, these tend to overstate the weakness being seen in the overall economy.
The next FOMC meeting is in mid-December with the market expecting a 50-basis point hike, though still views a 75-basis point hike as possible. The market expects the Fed to continue their slowdown in rate hikes heading into 2023 with one or two hikes next year and then moving towards easing policy in the second half of the year.
Market volatility lessened recently compared to the average of 2022, however investors’ fears still loom. We continue to use a quantitative investing approach, and let the data guide our investing part with minimal emotion-based interferences. Your portfolios are recalculated bi-weekly ensuring that we are in the best position to achieve your financial goals.
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