"It probably will be appropriate soon to move to a slower pace of increases." “By moving forward at a pace that’s more deliberate, we’ll be able to assess more data and be better able to adjust the path of rates to bring inflation down." – Fed Vice Chair, Lael Brainard 11/14/2022
Last week's market recap:
- The S&P 500 closed the week up 5.93%. Year-to-date the index is down -15.08%.
- Large-Cap Value leads performance YTD at -5.82%
- NASDAQ closed the week up 8.11% and is down -27.11% YTD.
- Barclays Aggregate Bond index is down -14.07% YTD
- 10-Year Treasury Rate decreased, ending the week at 3.82% from 4.17% the prior week.
- Fed Funds Target rate is 4.00%
- The 1-Year Treasury is yielding 4.65%
- A 6 Month Treasury is yielding 4.59%
- What is your savings account rate?
The week ahead:
- Retail Sales
- Housing Starts
- Earnings (Walmart, Target, Home Depot, Lowe’s, etc)
Inflation is starting to cool.
Last week we finally had a better than expected CPI reading of 7.7% (CPI Peaked in June at 9.1%) and the stock market rocketed higher. Investors are indicating this may be the start of a deflationary trend that lasts through next year.
Cooler inflation gives the Fed room to SLOW their rate hikes. This does not mean the Fed will “PIVOT.” Fed Futures are indicating a 50bp rate hike at their next meeting. Inflation remains too high. Fed officials will want to see several consecutive months of lower readings before considering a pause. Something would need to break for Fed officials to consider a pivot.
The futures market expects a terminal rate in the range of 4.75%-5% in May of 2023. This basically implies the Fed will raise 50bps at their next meeting, followed by two 25bp hikes, and then a pause. Jobs and inflation data over the next few months will be the biggest drivers moving terminal rate expectations.
While inflation is starting to cool, risks for the Fed to overtighten are still on the table.
As always, let us know if you have any questions.
CRA Investment Committee
Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Robert T. Martin, CFA, CFP®
Gordon Shearer Jr., CFP®
Jeff Hilliard, CFP®, CRPC®
Joe McCaffrey, CFP®
*AMG Funds Chart : https://engage.amg.com/i/iTT6J___9HOnZWZCmg2IGdsoQETYGm83NAG5KzrhDQSP8NHAY70jjW3___XO2zwHh0Xki5___AvpPLUSSIGNmPLUSSIGNUg6t9dDryLo5PLUSSIGNrPLUSSIGNS1IEynY2F2qI4EBEPnjozhD0t0fPLUSSIGNSgRpGhApGxoK5QFJ7gQ08WF2S0mMyF2bFCLSiiFvvqbAUigHXyZ4XSsEQUALSIGN?initialDoc=524d90f7-839d-4649-a230-646e80b43008
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