As the year’s final month, December brings holiday gatherings and hopefulness for brighter days ahead in 2023. Looking back at how the economy performed in November, we saw lighter holiday-week trading at Thanksgiving time, with stocks rallying as investors grew more hopeful for a slowdown in future rate hikes. The release of the minutes from the early November meeting of the Federal Open Market Committee (FOMC) fueled investors’ optimism.
Fed officials suggested such easing may be coming soon. Investor sentiment was also lifted by unexpectedly strong retailer earnings, plus upside surprises in new economic data, and a better-than-expected consumer sentiment reading. Investors looked past the continuing Covid- related challenges that have hampered China’s economic recovery and its attendant implications for global growth.
The Fed meeting minutes, released before the Thanksgiving holiday, showed that most Fed officials felt a slowing in interest rate increases would be appropriate. The minutes also suggested that such a deceleration in rate hikes may begin with December’s meeting, with a 50
basis point hike rather than a fifth-consecutive boost of 75 basis points.1 The primary reasons for slowing the pace of rate hikes were the growing risk that the Fed may increase rates beyond what was required to reduce inflation to its two percent target, and signs that inflation pressures were
Midterm elections have (mostly) concluded, with Republicans winning enough seats in the House of Representatives to constitute a majority when the 118th Congress is seated in January. The Democrats will retain control of the Senate regardless of the outcome of the Georgia runoff. Historically, a divided congress following a midterm election, with a Democrat in the White House, is beneficial for stocks. A split government makes it harder for significant policy changes to take place, offering some stability to investors.
Global events also continue to impact the markets. Markets reacted favorably to expectations that China is loosening its Zero Covid policy following Beijing’s announcement this week that they are speeding up the rate of Covid injections to the elderly. Accordingly, the Hang Seng Index had its best monthly performance (+27.3%) in 24 years. If China’s Zero Covid starts to soften, this should help reduce global inflation once supply chain issues start to ease.
As always, we’re here to help. Just give us a call if you have concerns about current economic conditions or need to chat about changes in your situation. We wish you the happiest of holidays!
1. & 2. The Wall Street Journal, November 23, 2022