 | AUTHOR: Jason Roque, CFP®, APMA®, AWMA® TITLE: Investment Adviser Rep – CCO TAGS: S&P 500, NASDAQ, FRB, CPI, Retail Sales, Rates |
The Fed declared victory over inflation Wednesday. Was that just a battle and should they be concerned the war is not over yet?
Monday S&P 500 0.39% | NASDAQ 0.20%
Markets moved sideways most of the day since there was not much in the weekend news cycle to cause chaos. Additionally, the Federal Reserve Board (FRB) meets this week for the final time this year. It is expected they will leave rates unchanged, but caution markets on moves of expectations of rate cuts for 2024. These expectations provide premature accommodation to financial markets and the economy through higher stock prices and lower interest rates.
Tuesday S&P 500 0.46% | NASDAQ 0.70%
Consumer Price Index (CPI) fell to 3.1%, its lowest level since July and consistently, since April of 2021. While this is good news, Core CPI held steady at 4%. Markets rose on the day as the news signals that ground continues to be gained in the battle against inflation. Alternatively, rate moves in the fixed income market signaled hesitancy on rate cut expectations for 2024.
Wednesday S&P 500 1.37% | NASDAQ 1.38%
30-year mortgage fell to 7.07%. The Producer Price Index (PPI) fell to 0.9%, with core PPI sitting at 2.0%. PPI is an upstream indicator of future inflation. Most importantly the FRB held rates unchanged. The most important piece was the FRB’s tone. Chair Powell seemed to be popping champagne and celebrating the defeat of inflation… It is still at 3.1%… Their target is 2.0%… The FRB additionally indicated an expectation of as many as three rate cuts in 2024. This sent markets higher and rates lower.
Thursday S&P 500 0.26% | NASDAQ 0.19%
The rally from Wednesday carried on into Thursday. This was aided by Initial jobless claims that fell to 202K and continuing jobless claims maintained at 1,876K. Also, core retail sales rose 0.2% in November when a –0.1% was expected. The improved economic data coupled with the meeting from Wednesday continued the rally higher for markets.
Friday S&P 500 0.01% | NASDAQ 0.35%
Markets were little moved to close the week. FRB member Bostic may have had some influence in slowing the party down. He walked back some of the celebratory message Chair Powell shared on Wednesday to try and calm an overzealous market. The 2-year interest rate climbed on the day reducing some of the expectations around rate cuts in 2024.
Conclusion S&P 500 2.49% | NASDAQ 2.85%
The FRB delivered the stock market what it was hoping for, the return of the ‘Fed Put’. This is where when things look bad, but don’t worry, the Fed will be the buyer of last resort. The concern would be the ‘Fed Put’ may have returned before the war against inflation has truly been won. The inflation data over the next 6 months could be very telling in that regard. The good news is this will likely lead to a reacceleration of economic growth, but hopefully not with added inflation…
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