Markets skewed to the upside last week as Personal Consumption Expenditures (PCE) for the month of October provided additional support to the peak-inflation narrative. The positive week helped the S&P 500 break above its 200-day moving average for the first time since the start of the second quarter. Yields mostly declined, yet the inversion of the 3-month/10-year yield curve grew, which has historically signaled investors’ growing conviction of an upcoming recession.
During an interview at the Brookings Institution, Federal Reserve (Fed) Chair Powell provided remarks that were less hawkish than previous interviews, signaling that a step down to a 0.50% rate hike could occur as soon as the December meeting. The Fed Chair remained firm that inflation is unacceptably high and that the potential for higher rates over a longer period is still something that threatens a soft landing.
Other economic news last week was mixed but not enough to tip the scale from the positive inflation data. October’s labor report showed some signs of cooling along with surprising resilience shown by both accelerating hourly earnings and an increase of 263,000 nonfarm payrolls. The unemployment rate held at 3.7%, but the labor force participation rate edged lower along with November’s ISM manufacturing, which fell to a contractionary level.
A look back
- Global equity markets moved higher last week with broad strength across all regions. International developed markets equities have climbed for seven consecutive weeks.
- Yields dropped for the 2-and 10-year U.S. Treasuries, leaving the 2-/10-year curve mostly unchanged. 3-month yields rose, further inverting the 3-month/10-year curve.
- Last week, the labor data for October was published with mixed results. There were subtle signs of labor market cooling, despite surprising resilience overall.
A look ahead
- The calendar is packed this week with shareholder events and brokerage conferences. Investors will be watching for any updates to 2023 guidance.
- The President of the European Central Bank will take the stage twice this week before the mandated seven-day quiet period ahead of the final meeting of 2022.
- Economic releases: Durable Goods, Factory Orders, ISM & S&P Global U.S. Services, Producer Price Index, and University of Michigan Sentiment.
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