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Stocks Fall Again
The major U.S. stock indexes fell around 2%, declining for the second week in a row but retreating less than they had the previous week. With a couple weeks left in 2022, recession fears continue to weigh on the markets.
As expected, the U.S. Federal Reserve lifted its benchmark interest rate for the seventh time this year, approving a more moderate 0.5% increase relative to its recent 0.75% hikes. However, Fed officials expect to keep the benchmark rate at a higher peak level next year than many observers had forecast, and stocks mostly retreated following Wednesday afternoon’s announcement.
A worse-than-expected U.S. retail sales report weighed on stocks on Thursday and added to fears that further interest-rate increases could tip the economy into a recession. Sales fell 0.6% in November, reversing course from the previous month’s gain and recording the biggest decline in 11 months.
The U.S. Federal Reserve had plenty of company in lifting interest rates by a half percentage point, as central banks in the European Union, the United Kingdom, and Switzerland also raised borrowing costs by the same amount. The U.K.’s Bank of England said that it believes the economy is in a recession.
U.S. prices rose at a 7.1% annual rate in November as measured by the Consumer Price Index, marking the smallest year-over-year increase since last December. Excluding food and energy costs, core inflation rose by 0.2% relative to the previous month—the smallest increase since August 2021.
If December is to end up positive overall for the U.S. stock market, it will require a significant rebound in the final two weeks of the year—an occurrence that’s sometimes called a Santa Claus rally. Over the first two weeks of December, the S&P 500 was down nearly 6% as of Friday.
Entering the final two weeks of the year, Wall Street analysts expect that 2022’s earnings growth rate for S&P 500 companies will average 5.1%, according to FactSet. If that year-over-year forecast is achieved, it would mark a big slowdown from 2021’s growth rate of 47.9%. Over the past 10 years, earnings growth has averaged 8.5%.
A report scheduled to be released on Friday will be closely watched for any signs that U.S. inflation continued to moderate in November. The government will update its Personal Consumption Expenditures Price Index, the Fed’s preferred gauge for tracking inflation. The most recent report showed that PCE inflation excluding food and energy prices rose 5.0% in October from a year earlier, down from 5.2% the previous month.
Source: John Hancock Investment Management
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