Stocks Drop and Bonds Rise on Inflation Data and Fed Speech

The Dow (-1.6%), NASDAQ (-2.7%), and S&P 500 (-2.0%) all fell for the week.  Conversely, taxable bonds rose about 0.7% and tax-free municipal bonds continued their winning streak by gaining about 0.2%.

Last week was all about that 800-pound gorilla in the room that we’ve been talking about all year – inflation and the Fed’s response by raising interest rates to combat it.  On Tuesday, the Consumer Price Index (CPI – the most popular measure of inflation) was reported to be 7.1%, down from 7.7% in October, and below economists’ expectations.  It also showed the downward trend since its peak of 9.1% in June.  The markets rallied on the news, as investors hoped the Fed would begin to ease its interest rate hiking programs.  Then reality set in on Wednesday when the Fed raised interest rates by the expected 0.5%.  However, the more-important Fed speech afterward indicated that the Fed will continue to raise rates, and even expects the final rates to be higher than previously expected.  This is illustrated by the Fed’s “dot plot” which is shown on the attached document.  That caused the stock markets to spiral downward for the rest of the week, while bonds remained resilient to the news.  There is very little news remaining for the rest of this year, and larger institutional investors typically take a break between now and year end.

See the attached market recap, and enjoy the rest of your day and week.  Also, Happy Hanukkah and Merry Christmas to all with whom this note applies.

^{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.}