facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
December 2022 Market Insights Thumbnail

December 2022 Market Insights


To reiterate what we wrote last month, what investors think is next from the Fed has been the driving force for both the bond and stock markets. Most of the same themes remain in play: the Fed signals a slowdown, jobs remain strong, medium- to longer-term bond yields have fallen, and inflation is slowing.

Inflation continues to decelerate:

If inflation reports continue to show low month-over-month rates of inflation, the year-over-year reports could significantly moderate by May. The PPI report (Producer Price Index) for November showed headline year-over-year inflation of 7.4%, compared to prior months’ readings of 8.0% and 8.5%. The CPI report (Consumer Price Index) for the month of November was 7.1%, compared to prior months’ readings of 7.7% and 8.5%. Core CPI, which excludes food and energy, was 6.0% in November, down from 6.3% the month before.

Other economic updates:

With a price around $77 per barrel, oil is about the same as where it started the year and is well below the ~$120 per barrel peaks seen in March and June. The weaker U.S. dollar this calendar quarter has actually kept oil prices higher, all else equal. The manufacturing economy is in contraction, with the latest ISM report slipping below 50. However, the larger services part of the economy is still growing, with a recent ISM Services report that was higher than expected and higher month-over-month. Weekly unemployment claims remain low and the monthly jobs report in early December was stronger than expected, with national unemployment staying at 3.7%.

Fed watch:

The Fed consistently signaled that the December rate hike on the 14th would be 0.5% (it was). We feel they are also consistently signaling that they have further to go than the market currently expects. With its rate hike, the effective Fed funds rate increased to 4.33%. Currently, the market expects 0.25% increases on February 1st and again on March 22nd, which would keep the effective rate below 5% at its peak. The Fed, however, projects a terminal rate over 5% and included comments indicating more hikes are coming, including that rates are not yet sufficiently restrictive. Their ability to control the jobs market and wages is limited, which may lead the Fed to raise rates too high before they see their desired result. The February 1st hike will also be in the heart of first quarter corporate earnings season, which may lead to above-average volatility.

Stocks, bonds, and cash:

In what may be a surprise to some, as of this writing, developed international stock indices have outperformed the S&P 500 this calendar year. More recently, stock indices have not changed much since our last Insights. In the past month, medium-term and long-term bond yields have continued to fall, with 5-year Treasury yields moving from approximately 4.0% to 3.6%, 10-year yields moving from 3.8% to 3.4%, and 30-year yields moving from 3.9% to below 3.5%. Despite the 0.5% increase from the Fed, 3-month Treasury yields have only increased from just over 4.1% to 4.2%. With short-term rates now over 4%, we continue to highlight that it literally pays to pay attention to your cash yields. Please revisit what your bank is paying and what better yield opportunities there might be for your short-term reserves. 

Buckingham is here for you:

Buckingham Advisors continues to grow thanks to introductions and referrals from our valued clients. All the while our focus remains on serving each family, each business, and each foundation with special attention to what matters most to them. If you found this edition of Market Insights informative, please send this issue on to others. To be in touch directly, here’s a link: https://mybuckingham.com/contact. 

Thank you for your continued trust and support.