Monthly Market Insights: December 2022

U.S. Markets

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 4.38 percent.1

A Determined Fed

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

Inflation Report

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.

Powell Confirms

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.

Sector Scorecard

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

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 percent 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 It’s an open question whether the November Consumer Price Index, which will be released on December 13, will impact the Fed’s decision. Investors are expected to pay close attention to Fed Chair Powell’s comments following the FOMC’s announcement. In November, stock prices rallied after the release of the meeting statement, only to reverse course on Powell’s hawkish tone in response to reporters’ questions. World Markets Overseas markets rallied in November as the MSCI-EAFE Index picked up 11.08 percent.6 In Europe, Italy gained 9.51 percent, and Germany rose 8.63 percent. Elsewhere, France added 7.53 percent, the U.K. tacked on 6.99 percent, and Spain advanced 5.11 percent.7 Pacific Rim markets were strong, with Australia climbing 6.13 percent and Japan adding 1.38 percent. China’s Hang Seng index had a sharp rally, picking up 26.62 percent.8 The Fed 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

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1. WSJ.com, November 30, 2022

2. WSJ.com, November 2, 2022

3. CNBC.com, November 10, 2022

4. SectorSPDR.com, November 30, 2022

5. FederalReserve.org, November 2022

6. MSCI.com, November 30, 2022

7. MSCI.com, November 30, 2022

8. MSCI.com, November 30, 2022

9. CNBC.com, November 30, 2022

10. WSJ.com, November 4, 2022

11. WSJ.com, November 16, 2022

12. MarketWatch.com, November 16, 2022

13. Finance.Yahoo.com, November 17, 2022

14. WSJ.com, November 18, 2022

15. Finance.Yahoo.com, November 23, 2022

16. CNBC.com, November 10, 2022

17. Nasdaq.com, November 23, 2022

18. WSJ.com, November 2, 2022

19. WSJ.com, November 23, 2022

20. RealChristmasTrees.org, 2022