Hope you are all doing well. A big rally for U.S. stocks on Wednesday offset the impact of Monday’s decline, sending the major indexes to modest weekly gains. The NASDAQ added around 2%, the S&P 500 rose 1%, and the Dow finished up slightly. This week Mauna Loa, the largest active volcano in the world, erupted for the first time in nearly four decades. I have broken down this week’s update using ways to identify a volcanic eruption.
Subtle swelling of the ground surface
Wednesday’s speech by U.S Federal Reserve Chair Jerome Powell contained a subtle comment about the pace of rate hikes and markets erupted higher on Wednesday. The rally saw the NASDAQ jump 4.4%, the S&P 500 rise 3.1%, and the Dow add 2.2% on the day. The Dow’s gain put that index into a new bull market, as it rose more than 20.0% above a recent low on September 30. Chair Powell confirmed in the speech that smaller interest-rate increases could start as soon as the Fed’s December 13-14 meeting. Officials have approved rate hikes of three-quarters of a percentage point at each of their last four meetings. I am cautiously optimistic that the Fed could slow the pace of rate hikes though I don’t think it is a foregone conclusion that they will in December.
Enlarged areas of hot ground
The labor market remains hot and continues to expand. Jobs are abundant and it has been a source of strength in the weakened U.S. economy. The November jobs report showed that 263,000 new jobs were added. It marked the fourth consecutive month with job gains in the 200,000 to 300,000 range and the 23rd month in a row with at least 200,000. There is still room for more job gains as 88,000 of the jobs added were in leisure and hospitality which is still 6% below its pre-pandemic employment level. More impressive is the unemployment rate held steady at 3.7% while wage growth increased to 5.1%. With wages growing and the labor market remaining strong it provides the Fed more runway to continue raising rates. The Fed may slow the pace of hikes but the pause in rate hikes that many are predicting for early next year may not happen as quickly as markets forecast.
Small changes in heat flow
The bond market is telling us that investors see the direction of inflation starting to change. The yield of the 10-year U.S. Treasury bond tumbled to its lowest level in two and a half months, settling around 3.51% on Friday after ending the previous week at 3.69%. Falling yields is a result of continuing signs that high inflation has recently been moderating.
If you’d like to speak about your investments or your plan, my calendar link is below and you can schedule a phone or zoom appointment, please note the calendar will not allow you to schedule the final 3 weeks of the year. If there is something specifically you would like to touch base on before the end of the year and you are unable to schedule before December 10th then let me know by email and I will make accommodations.