Hope all is well with you. All of the major averages posted losses for the week. The Dow ended 0.01% lower. The S&P 500 lost 0.69% for the week, while the Nasdaq ended 1.57% lower. All three indexes are still positive for the month. As it is Thanksgiving week I have broken down this week’s update using lyrics from Adam Sandler’s Thanksgiving Song.
Gobble gobble goo and gobble gobble gickeI, I wish turkey only cost a nickel— Adam Sandler 'Thanksgiving Song'
We are all wishing for the inflation to stop. We got more signs that inflationary pressure is starting to abate this week. The major averages rallied Tuesday after the producer price index, a measure of wholesale inflation, showed a 0.2% increase for the month, versus the consensus estimate for October of 0.4%. The report comes on the heels of last week’s positive read on the consumer price index. The Fed is not yet declaring victory in the war over inflation, with comments from Fed officials later in the week aligning to the view that rate hikes will continue.
Turkey lurkey doo and turkey lurkey dap, I eat that turkey then I take a nap— Adam Sandler 'Thanksgiving Song'
The market is now predicting that the Fed will take a nap from its rate hikes early next year. It is now being predicted that the pace of the hikes will slow and a pause in the early part of next year. I am optimistic that we are closer to the end of the Fed’s campaign. Previous rate hike cycles have shown that the period after the last rate hike tends to be quite favorable for stock returns. This is a unique inflation environment, because of the economic resiliency and strong labor market. The economy is resilient but not strong enough to prevent a mild recession. That is why a pause in rate hikes is more likely than a pivot. I would NOT expect any rate cuts, but a pause is historically a good thing. The last four times the Fed has paused in rate hiking cycle it’s been great for stocks with an average return of 10.4% for stocks. With short term rates getting higher it is tempting to get out of stocks and go into short term bonds or even CDs. I still believe this is a mistake to remove money you are not planning to spend in the next two years from the stock market to go into bonds or CDs. The stock market will turn around and the growth should outpace bonds and CDs.
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.