This week, U.S. equity markets took a hit as traders weighed concerns about apotential recessionwith the possibility of more aggressive tightening by the Federal Reserve. TheDow dropped 2.8%, theS&P 500 lost 3.4%, and theNasdaq contracted by 4%.
Next week is shaping up to be a big one for the economy, with two major events on the calendar: the NovemberCPI reportand a meeting of the Federal Reserve, determiningwhere interest rates are headed next.
While a mild inflation reading is unlikely to change the Fed’s hawkish stance, a flat reading or even a surprise increase could shock investors who are betting on an inflation peak.
For a full list of events in the upcoming week, please refer to the economic calendar.
FOMC Meeting
Next week,the Federal Reserveis expected to raise interest rates by 50 points during its two-day policy meeting. Despite strong labor market readings, the housing slowdown is starting to affect manufacturing, and economists are divided on how high-interest rates will go.
Markets have priced in an even chance of between a 25 basis point and 50 basis point hike in the Federal Reserve meeting. With seven in ten American Consumers still saying thatinflation is a major problem, will the fed catch markets off guard or play it safe?
November Inflation Report
Next week, we’ll get the latest update on consumer inflation with the release of the Bureau of Labor Statistics November Consumer Price Index. Consensus forecasts estimate that prices are expected to have risen 0.2% last month, half of the monthly gain seen in October.
CPI Data, Source:Tradingeconomics.com
On a yearly basis, prices are likely up 7.5%, down from 7.7% in October and a positive trend fromthe 9.1% witnessed in June. Core inflation, which excludes food and energy costs, is expected to have slowed to a 6.2% annual rate, down from 6.3% in October and compared to a 40-year high of 6.6% in September. If inflation numbers are higher than anticipated
Technical Indicators
S&P 500 Chart, Source:TradingView
The S&P 500 Index is now down 16.05% for the year. The Fear and Greed Index is now at 48, which indicates that investors are bearish about stocks.
1-Week Relative Performance, Source:Finviz
The three best-performing industries for the past week were Utilities, Healthcare, and Real Estate, which delivered returns of -0.82%, -1.55%, and -3.44%.
Bottom Line
Major indiceswere hard hit last week, as fears of a severe recession increased due to the aggressive stance taken up by the Federal Reserve. The week ahead is packed with a crucial meeting of the central bank policymakers and a key inflation report that will guide markets.
In recent weeks, markets have continued to drop due tohigher inflationand a weakening economy. Key corporate earnings and housing market updates will clearly depict where indices could be headed next.
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