Stocks and Bonds Rally on Fed Speech

Good morning, and welcome to the first full week of December.  Holy cow - it’s December already!  As most of you already know, Menninger & Associates underwent an administrative change last week, so the look of our weekly recap will change a little bit.  We will also now be attaching a brief document prepared by Cornerstone Portfolio Research, the group of CFAs we have hired to serve as investment consultants for our firm and on behalf our clients.

The Dow (+0.4%), NASDAQ (+2.1%) and S&P 500 (+1.2%) all gained for the week, thanks in great part to a strong rally on Wednesday.  Meanwhile, taxable bonds gained about 1.5% and tax-free municipal bonds gained about 1%.  For bonds, it’s a relief to see them rally from their worst year ever, as they have rebounded nearly 5% since the beginning of November.

Last week’s movements in the stock and bond markets were driven by a speech from Fed Chairman Jerome Powell on Wednesday, as he indicated that the Fed may slow down its rate of interest rate hikes.  This was further supported by the PCE index (a Fed-favored measure of inflation) that fell to 5%, down from 5.2% from the previous month.  Hence, the 800-pound gorilla in the room (inflation and the Fed’s response) seems to be easing a bit, and the markets responded very favorably.

In other economic data last week, the ISM Manufacturing index fell below the 50 level to 49.0, indicating contraction in the economy.  That was the first reading below 50 since the onset of the pandemic in March 2020.  However, the labor market remains strong, as 263,000 jobs were added in November, exceeding economists’ expectations.  The strong jobs market creates inflationary pressure, so that is in conflict with the other inflationary measures that are easing, and could impact the Fed’s decision to slow the rate of interest rate hikes.  Time will tell.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.