Market Pulse

In focus

The Market Pulse will return on January 3, 2023.

Markets whipsawed last week, with equities initially rallying on optimism sparked by a softer than expected Consumer Price Index (CPI) print on Tuesday. While both headline and core CPI declined and were below expectations, Federal Reserve (Fed) officials noted that much of the easing was in goods inflation. Officials have stressed the importance of bringing down services inflation, which has proven more difficult to achieve. Investors will get a look at the Fed’s preferred inflation gauge, Personal Consumption Expenditures (PCE), this week as they continue to evaluate the path of inflation.

The initial gains in the market quickly vanished in the back half of the week following the FOMC meeting and their release of the Summary of Economic Projections. While the 50-basis point (0.50%) hike was expected, the median 2023 terminal rate projection shown by the Fed was 5.1%, another increase from the 4.6% expectation shown in September. Chair Powell struck a familiar tone in his post-meeting press conference, reiterating that the Fed will remain steadfast in fighting inflation as its number one priority.

Investors will likely remain uneasy heading into the new year, wrestling with a slowing economy amid monetary tightening.

A look back

• Global equities tumbled across the board last week, with both international markets and the S&P 500 dropping roughly 2.1%.
• Yields fell across most of the curve, and the 2-/10- year inversion eased. However, 3-month rates rose slightly, increasing the 3-month/10-year inversion to -83 bps.
• The Fed increased their policy rate by the expected 0.50%, but their projections showed a higher terminal rate in 2023 than previously expected.  

A look ahead

• While the economic calendar is relatively light, the Fed’s preferred inflation gauge, PCE, will provide investors with another data point on inflation.
• Real estate data will give insight into the housing market. Existing home sales are expected to fall for the tenth consecutive month amid high mortgage rates.
• Economic releases: New & Existing Home Sales, Consumer Confidence, Leading Index, PCE, University of Michigan Sentiment.

To read the publication in its entirety, please click the button below "Download PDF".