Market Drama

Welcome back to Zoe’s weekly Market Drama series.

• Last week, the S&P 500 was up 1.5%. It’s now up 11.5% for the quarter, even though it’s still down 14.5% for the year to date.
• Federal Reserve’s minutes were out, and there were some interesting commentaries.
  • Fed committee members showed concern that if the aggressive hike pace continues, the financial system could be at risk.
  • They’re expecting a recession as the base case, which is kind of crazy since they continue hiking interest rates (in prior cycles, the Fed would hike rates to avoid a recession).

• Growth year-over-year for the third quarter was worse than expected: 2% (forecast was 9%). 
• For the fourth quarter of this year, consensus estimates are -2% (would be the lowest YoY quarter number since Q3 2020, when COVID hit).
• Why is this relevant? Earnings are the number one driver of market returns in the long run. Companies could pass on some of that inflation cost to the consumer. If prices keep rising for the consumer, demand could be affected.

• November payroll numbers come out, as well as average hourly earnings, on Friday.
  • These numbers give us a sense of the labor Market Slack. The Fed’s looking for more slack, rather than less slack of employment,
  • The average hourly earnings give us a sense of wage growth, which had been low for decades and now has gone up a fair bit.

– Andres