Stocks trended down in the first half of this week as investors weigh the specter of a recession and the possibility of a longer-than-expected cycle in interest-rate hikes from the Federal Reserve. As of mid-week, the S&P 500 index was down about 3.5%, following the strong return for the index of 5.6% in November. Encouraging data on the inflation front, along with hopes for smaller interest-rate increases going forward, have helped both stocks and bonds rally for two consecutive months prior to the start of December. Overseas, the MSCI ACWI ex-US (international stocks) rallied nearly 12% in November, buoyed by a weaker U.S. dollar, relatively upbeat economic data, and lower gas prices. With the 2-year and 10-year Treasury notes now trading at a yield of 4.25% and 3.45%, respectively, lower yields have translated into positive returns over the past month, with broad-based taxable bonds up about 3.7% in November.
Investors now are looking forward to the next batch of inflation data, with headline producer prices (PPI) expected to fall from 8.0% to 7.2% Friday, and with consumer prices (CPI) next Tuesday expected to decline from last month’s 7.7% level. At their meeting next week (Dec. 13-14), the Fed is widely expected to announce a 0.50% (50 basis point) rate hike, after raising rates 75 basis points at each of the previous four meetings. Market participants continue to monitor inflation and growth data as they remain concerned over whether the Fed can avoid a recession while successfully tamping down inflation.
Source: GSAM, CNBC, JPMorgan
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