Weekly Market Update: November 14, 2022
The central bank remains on its increasingly restrictive monetary policy course. The Federal Reserve raised the benchmark short-term interest rate by 0.75% at its November Federal Open Market Committee meeting. It marked the fourth-consecutive three-quarter-point hike and brought the federal funds rate to a range of 3.75% to 4.00%.
Moreover, a continued hawkish stance was conveyed by Fed Chairman Jerome Powell in his press conference discussing the monetary policy decision. Mr. Powell said continued rate hikes are appropriate, and he believes that the federal funds rate may need to go above 5.00% and stay at that more restrictive level for a longer duration than anticipated.
October employment data give the Federal Reserve no reason to pause on the rate-hike front. While the unemployment rate rose from 3.5% to 3.7%, the nation still added 261,000 jobs last month. Additionally, the average hourly wage figure, which is an indicator of inflation in the labor market, climbed 0.4%, a bit stronger than expected. Overall, the labor market remains tight, which makes the Fed’s task of taming inflation all the more arduous.
Meantime, third-quarter earnings season is winding down and, in general, it has been better than initially feared. According to FactSet Research, more than 70% of the S&P 500 companies have reported positive revenue and earnings surprises.
Treasury market yields remain inverted (long-term rates being lower than short-term rates), with the spread between the two-and 10-year Treasury notes widening on the Fed’s monetary policy decision. This, along with the drop in the labor force participation rate in October, which means fewer people are contributing to the nation’s output of goods and services, suggests the economy is weakening.
Conclusion: The headwinds for the stock market, including uncertainty about the Fed’s ability to successfully fight inflation without pushing the economy into recession, remain in place. In this environment, we recommend a continued cautious investment approach.