Stocks surged higher in November on rising optimism that the Fed would slow down future interest rate hikes.

The Dow Jones Industrial Average gained 5.67 percent, while the Standard & Poor’s 500 Index picked up 5.38 percent. The tech-heavy Nasdaq Composite rose 4.37 percent.¹

As expected, the Federal Open Market Committee (FOMC) ended its November 1–2 meeting announcing its fourth consecutive 0.75 percentage point hike in federal funds. In the accompanying statement, the FOMC suggested a potential easing in subsequent rate hikes.

 

Stocks rallied on the news but did an abrupt reversal when Fed Chair Jerome Powell struck a much more hawkish tone in his post-meeting press conference. Losses accelerated into the following day, cementing a poor start to the new month.² 

The markets turned around the following week, however, when a lower-than-expected inflation report triggered the biggest one-day stock market gain in more than two years. The report revived hopes of a slowdown in the pace and size of future rate hikes. The tech-heavy Nasdaq gained 7.4 percent for the day.³

As the month progressed, public comments by Fed officials appeared to pour cold water on investors’ hopes. Despite these hawkish comments, stocks rallied during the holiday week and picked up momentum following the release of the FOMC meeting minutes the day before Thanksgiving.

The meeting minutes suggested that an imminent easing in rate hikes may be in the offing. The minutes revealed that most Fed officials felt a slowdown in the pace of rate hike increases was appropriate. Fed officials pointed to the growing risk that the Fed may increase rates beyond what was required to reduce inflation.

Stocks surged higher to close out the month after comments by Powell that the Fed was prepared to ease up on coming rate hikes. 

All 11 industry sectors were positive for the month, with gains in Communications Services (+6.85 percent), Consumer Staples (+6.12 percent), Energy (+1.28 percent), Financials (+6.86 percent), Health Care (+4.72 percent), Industrials (+7.81 percent), Materials (+11.70 percent), Real Estate (+6.83 percent), and Utilities (+6.96 percent). Elsewhere, Consumer Discretionary rose 1.49 percent and Technology added 6.33 percent.⁴

What Investors May Be Talking About in December 2022

In the month ahead, the financial markets will again focus on the Fed as it concludes its two-day meeting on December 14. November’s 0.75% increase in the federal funds rate marked the fourth consecutive 75 basis points hike since June.

 

Inflation appears to be trending lower, and the job market is showing signs of cooling, which may help influence the Fed’s decision. The Fed has prepared the financial markets for its next move, so it’s unlikely to change course.⁵

The Federal Reserve announced a 0.75 percent rate hike in federal funds at the conclusion of its two-day November meeting of the Federal Open Market Committee (FOMC). In the statement accompanying the announcement, the FOMC said that future rate increases would take into account the cumulative monetary tightening to date and the lag in the impacts resulting from such tightening.

In his post-meeting press conference, Fed Chair Powell added that it was too soon to consider any slowdown in the pace of rate hikes and that the terminal rate may be higher than originally expected.¹⁸ 

In the November meeting minutes released just before Thanksgiving, Fed officials indicated that they were likely to slow the pace of rate hikes soon, suggesting that such slowing may begin with December’s meeting.¹⁹