Equity markets posted their third straight weekly loss as new economic data continues to provide evidence of peak inflation and a stubbornly strong US economy. A volatile week of trading ended with the S&P 500 and Russell 2000 lower by 0.17% and 0.12%, respectively, and the NASDAQ declining by 1.93%.1 Meanwhile longer-dated (2+ years) US Treasury yields climbed higher.2
The week began with the Bank of Japan (BoJ) surprising markets by raising the cap on its 10-year yield to 0.50% from 0.25%.3 BoJ Governor Haruhiko Kuroda stated the decision was aimed at improving market functioning and smoothing out a distorted yield curve. 3 Many economists interpret this move as laying the groundwork to pivot from a decade-long easing policy. 3
A strong consumer and a tight labor market continue to support the US economy. 4 On Thursday the 3Q GDP estimate was revised higher to a 3.2% annualized growth rate from 2.9%.5 Personal consumption was also revised higher, reflecting stronger spending on services. 5 Recession fears continue to rise as a strong US economy may lead the Federal Reserve to overtighten in its fight against inflation.
The week ended with the PCE Price indices reported on Friday providing continued support of moderating inflation. The PCE Core Index rose 4.7% year over year and 0.2% month over month in November.6 While the PCE indices continue their downward trajectory, these figures remain far from the Federal Reserve’s long-term target of 2%. As Fed Chairman Jerome Powell put it: “Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor market conditions.” 7
Thank you for your confidence in our team,
Asset Management Department
Sequoia Financial Group
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Morningstar Direct
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US Department of the Treasury: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202212
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Bloomberg Article: Yen Surges as Kuroda’s Yield Cap Shock Sparks Normalization Bets
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US Department of Labor: https://www.dol.gov/ui/data.pdf
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Bureau of Economic Analysis: https://www.bea.gov/sites/default/files/2022-12/gdp3q22_3rd.pdf
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Bureau of Economic Analysis: https://www.bea.gov/sites/default/files/2022-12/pi1122.pdf
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The Federal Reserve: https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20221214.pdf