December 19, 2022

The Markets

Bad news is bad news, once again.
 
For months, investors have cheered bad economic news. When the United States economy showed signs of weakness, stock markets often reflected investor enthusiasm. The thinking was that bad economic news would persuade the Federal Reserve to slow the pace of rate hikes. Inflation would slide lower, and recession would be avoided.
 
Last week, there was a shift in attitude.
 
On Wednesday, the Federal Reserve raised the federal funds rate by half a percent, as expected. Over the course of this year, the fed funds rate has risen from near zero to 4.33 percent. That’s an enormous increase designed to drop inflation by slowing economic growth – and the Fed expects growth to slow.
 
The dot plot is a chart that reflects the expectations of each member of the Fed’s decision-making committee. It showed that Fed officials expect U.S. economic growth to slow next year. The forecasts indicated gross domestic product (GDP), which is the value of all goods and services produced in the U.S., could grow very slowly or even contract next year (it could contract -0.5 percent or grow to 1.0 percent). Fed officials also anticipated the unemployment rate could rise from a relatively low 3.7 percent to 4.6 percent.
 
The day after the Fed’s statement, the Commerce Department reported that retail sales declined more than expected in November. That suggests economic growth may be slowing.
 
The stock market didn’t surge on the bad economic news. It retreated. Vildana Hajric and Lu Wang of Bloomberg reported:
 
“For the first time in a long time, news that was bad for the economy was bad for the stock market as well, more proof that recession fear has replaced inflation angst as that market’s biggest bugaboo… Rather than rise on speculation that weak data would curb Federal Reserve tightening, the S&P 500 dropped 2.5% on Thursday, while the Nasdaq 100 lost 3.4%. Small-cap stocks lost more than 2.5% and the VIX volatility gauge shot back above 22. The yield on 10-year Treasuries hovered around 3.45%, down from a peak of 3.63% earlier this week.” 
 
Last week, major U.S. stock indices finished lower, and the Treasury yield curve remained inverted.

We hope you have happy and healthy holidays!

Weekly Focus – Think About It

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—Socrates, philosopher

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* These views are those of Carson Coaching, not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
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* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
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* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
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* Consult your financial professional before making any investment decision.
Sources:
https://www.bloomberg.com/news/articles/2022-12-15/stock-market-traders-discover-that-bad-news-is-bad-after-all (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/12-19-22_Bloomberg_Stock%20Market%20Traders%20Discover%20that%20Bad%20News%20is%20Bad%20Afterall_1.pdf)
https://www.newyorkfed.org/markets/reference-rates/effr
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20221214.pdf
https://www.reuters.com/markets/us/us-retail-sales-fall-more-than-expected-november-weekly-jobless-claims-decrease-2022-12-15/
https://www.barrons.com/articles/fed-interest-rates-stock-market-51671240434?refsec=the-trader&mod=topics_the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/12-19-22_Barrons_The%20Fed%20is%20Making%20a%20Mistake%20and%20the%20Stock%20Market%20Will%20Pay_5.pdf)
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202212
https://www.barrons.com/articles/everyday-decisions-wealth-retirement-annamaria-lusardi-51638573781 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/12-19-22_Barrons_How%20Everyday%20Decisions%20Affect%20Your%20Wealth_7.pdf)
https://gflec.org/wp-content/uploads/2022/04/TIAA-Institute-GFLEC-2022-Personal-Finance-P-Fin-Index.pdf
https://www.goodreads.com/quotes/tag/knowledge
By Published On: December 20th, 2022

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