Market Note – December 12, 2022

By Hightower Great Lakes on December 12, 2022

CPI and the Fed this Week

The November CPI report is released Tuesday and will likely determine how markets finish the year. A lower-than-expected CPI print could spark an equity rally into year-end, while persistent inflation and limited progress might lead most industries lower.

We expect the market to remain in a trading range, in anticipation of CPI on Tuesday.

Markets have rallied significantly in Q4 from the lows earlier in October – driven by value stocks – due in-part to seasonal tailwinds, better-than-expected earnings and the narrative supporting a slower pace of rate hikes.

There are sectors that we think could outperform into year-end because of demand – particularly energy, materials and industrials. We remain overweight these groups.

Chart 1: Index Performance Rebound in Q4¹

Last week, PPI, which represents selling prices for producers, continued to move lower on a month-over-month basis. But stepping back, the 7.4% year over year basis remains too high for the Fed and is the reason they remain hawkish with higher rate increases.

Chart 2: Producer Price Index (PPI)²

Fed Comments on Wednesday Will Impact Forward Rate Curve

Treasuries rallied though Wednesday, but sold off through the remainder of the week as the 10yr yield rose 16 bps off its lows. After briefly reaching -89 bps on Wednesday, the closely watched 3m/10yr spread became “less-inverted,” finishing the week at -72 bps as longer dated yields spiked relatively higher versus shorter-dated maturities.

All eyes remain focused on this Wednesday’s FOMC rate hike decision, where policy rates are expected to rise 50 bps after four consecutive 75 bps hikes dating back to June.

Chair Powell will likely face questions related to the deepening of the yield curve inversions, along with questions of a more resilient economy shown in last week’s ISM services index reading (56.5 vs est. 53.5).

The Week Ahead

Earnings – Thursday: LEN, ADBE. Friday: DRI.

Economics – Tuesday: CPI (November). Wednesday: FOMC Meeting. Thursday: Retail Sales (November), Industrial Production (November), Business Inventories (October).

Return for Selected Indices³

Click here to read last week’s Market Note (12/5).

Disclosures

OCIO is a group of investment professionals registered with Hightower Securities, LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. OCIO and Hightower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of OCIO and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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¹ Source: FactSet (chart). As of December 12, 2022.

² Source: Bureau of Labor Statistics (chart). As of December 12, 2022.

³ Source: FactSet (chart). As of December 4, 2022.