Don’t look now but the S&P 500 index just posted its first back-to-back monthly gains since August 2021 with climbed another +5% in November and with a little bit of luck, December will be joining the comeback party.
Last month got started off with The Fed Funds rate being increased by another 0.75% for a record fourth time this year. However, the silver lining in this was the October Inflation report that came out shortly after FINALLY showed a meaningful decrease in inflation, thanks to Shelter (home sales/rent) softening. Shelter has been the #1 stickiest part of inflation up to this point so with this positive surprise, many are starting to believe inflation has truly peaked, including Jerome Powell. During his November 30th Federal Reserve news conference, Fed Chairman Powell signaled that if inflation continues to fall, the pace of hikes will likely slow soon. That announcement alone caused a huge rally in stocks on the last day of the month.
The last Fed meeting of the year is slated for December 14th and the November Inflation report will be released the day prior. If Inflation data declines once again, I would expect rate hikes to slow or possibly even pause, which would send equities roaring higher and fuel a much-needed Santa Clause rally to close out 2022.
Throughout 2022, markets have been pummeled by these historical rate hikes but despite it all, the consumer has remained resilient and afloat in the face of rising prices. For example, during Black Friday, Americans spent over $9.12 billion, up from $8.92 billion the previous year. 3 days later, Cyber Monday sales hit a record $11.3 billion, which was a 5.3% increase from 2021, according to Adobe Analytics. Despite this calculated plan of the Fed to slow down our economy to tame inflation, they have done a magnificent job. It could’ve broken us but it didn’t. That is why the possibility of a soft landing (and not a hard landing aka deep recession) is still very much on the table.
Don’t get me wrong, we still have these ever-looming geopolitical risks with China & Russia but make no mistake, inflation has been #1 on America’s priority list all year and it’s finally looking like we are near the end.
As we turn the page to December, I will be focused on getting a better idea for what’s in store for 2023. Last year, myself and many of my peers got it wrong when it came to understanding just how far the Federal Reserve would go in their battle against inflation. No one anticipated that inflation would have transformed from a temporary Pandemic-driven supply/demand imbalance to enormous wildfire, spreading across all aspects of our economy. Furthermore, no one envisioned that a 0.75% rate hike would ever occur, let alone 4 (maybe 5) times in a single year! But that is in the past now and just like the stock market, I am focused on the future. Throughout December, I will be in attendance for numerous “2023 Economic Outlook” presentations from some of the brightest minds on Wall Street. In next month’s newsletter, I will share my opinion on what’s is in store for the New Year.