Markets “In a Nutshell” for November 7, 2022
Investment Week at a Glance
Stocks finished lower for the week. The Dow Jones Industrial Average fell 1.40%, the S&P 500 was down 3.30%, and the NASDAQ fell 5.60%. Foreign stocks (MSCI EAFE) were also down, falling 1.00%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 4.16%. (Data source: Wall Street Journal)
Fed Raises Rates By 0.75%
As expected, the Federal Reserve once again raised rates by 0.75%, bringing the target rate to 3.75%-4.00%. As this hike was once again expected, the market had already priced this in and was more interested in Fed Chair Powell’s view on the current state of the economy and future rate hikes. Powell stated that while the next rate hike may be smaller than what we have recently seen, any talk about a pause in hiking rates is still premature. This makes it unlikely we see a pause this December or even in February next year for rate hikes. Back in September, the Fed had projected the peak rate would be around 4.6%, however with no sign of the Fed pausing rate hikes, the market has not priced at a peak of 5%-5.3% in the first half of 2023. Although the market has many other variables, the Fed and rates continue to be top of mind for investors.
There was also a jobs report last week that showed the labor market was still very strong. The number of jobs added increased by 261,000 compared to the estimates of 200,000. Unemployment did rise from 3.5% to 3.7% and we could continue to see higher unemployment as we move through this cycle of rate hikes. Another interesting data point was that wage inflation was 4.7% down from 5.0% the month before. This could be a sign of slowing inflation overall as wage increases cool off prices could continue to rise slower. While the Fed has been raising rates the whole year, it is important to remember these hikes won’t be seen in the economy right away. This decline in wage growth could be a sign that the rate hikes are beginning to do their job of slowing down the economy. The next CPI report will be released Thursday as investors will pay close attention to see if inflation is coming down.
What is the average S&P 500 return in the 12 months following midterm elections since 1950? (Scroll Down for Answer)
Have a Great Week!
4) 15%, Not only do markets tend to perform well after midterms, they also do the best when the one party does not control all 3 branches.