The second half of November proved to be relatively quiet as the market took a breather from recent volatility. Underlying economic reports were mostly positive, while inflation and the Federal Reserve’s (the Fed) policy of interest rate increases remained in the spotlight.
Consumer spending, which is the largest driver of the U.S. economy, set new records over the Thanksgiving holiday. Black Friday sales topped $9.12 billion, according to Adobe. That was an increase of 2.3% year-over-year.1 Cyber Monday numbers are also expected to exceed previous records.
Meanwhile, an initial report by ADP on private hiring, released on November 30th, showed the number of new positions added in the month of November was much lower than expected. While new jobs numbered 127,000, expectations were for 190,000. By comparison, the October report showed 239,000 new positions added.2
Typically this kind of mixed report drives market growth, where bad news for the economy is good news for the market (the rationale being that fewer new jobs demonstrates a slowing economy, which in turn reduces inflation and makes it likely the Fed will hasten a halt to increasing interest rates.)
The markets continue to eagerly anticipate the Fed’s “pivot”, the term for a Fed policy change stopping interest rate hikes. October’s surprisingly lower inflation reading has stoked market hopes that the timing of the pivot will be sooner than later. Indeed, minutes released last week from the Fed’s most recent meeting showed that most Fed officials were inclined to slow the pace of interest rate increases.3
“For many investors, the “pivot” promise from October’s CPI print elicited a sigh of relief. Given that stock prices are higher, bond yields are lower and the dollar has softened in the recent weeks after the inflation reading it would appear that markets have reached a turning point. However, investors would be wise to interpret these moves realistically and realize that while the long-term story remains intact, the short-term view still isn’t rosy,” said Jack Manley, Global Market Strategist for J.P. Morgan Asset Management.
In late news, Fed Chairman Jerome Powell gave a speech Wednesday, November 30th, indicating that interest-rate hikes will start decreasing in size as early as the Fed’s next meeting (in mid-December.)4 Led by the NASDAQ Composite Index (NASDAQ), all major markets climbed on the news.
As for the future of the markets, Mr. Manley from J.P. Morgan offered the following perspective, “All told, it is too early to call the bottom (or top) for these markets, and more than anything, the investors should expect volatility through the next several months. That said, it is important to look at the bigger picture: stocks and bonds are cheap, the U.S. dollar so expensive, that investors should take comfort in the strong long-term valuation tailwinds. Ultimately, this makes the case for being a long-term investor, avoiding market timing, and embracing active management.”
Reviewing returns for the second half of November, returns were modestly positive. As of November 30th, the Dow rose by 997 points (2.97%), the S&P 500 gained 88 points (2.21%) and the NASDAQ grew by 110 points (0.96%).
1 www.cnbc.com “Black Friday online sales top $9 billion in new record” November 26, 2022
1 www.cnbc.com “Private hiring increased by just 127,000 jobs in November, well below estimate, ADP reports” November 30, 2022
3 www.jhinvestments.com/weekly-market-recap.com “Weekly Market Recap, Week ended November 25” November, 2022
4 www.investors.com, “Dow Jones Turns Positive After Fed Chair Jerome Powell Speech; Salesforce Earnings On Deck” November 30, 2022
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