Major Indicesclosed flat on Friday despite amore robust jobs report which renewed fears of aggressive tightening from the Federal Reserve to keep inflation in check.
Investment Banks like Citi Group, BlackRock, and JP Morgan are now anticipating arecessiondue to increased monetary tightening, a significant slowdown in the housing market, and aninverted treasury yield curve, making the case that growth may slow down in 2023.
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However, markets posted solid gains for the week after a midweek speech from Federal Reserve Chairman Jerome Powell, whichcalmed fears of a severe recession and increased the odds of a possible soft landing.
For the week, the Dow Jones rose 0.2%, the broader market S&P 500 climbed 1.1%, and the tech-heavy Nasdaq surged 2.1%. Markets will look at theProducer Price Index and Consumer Sentiment Indexfor guidance for the week ahead.
Producer Price Inflation
The Bureau of Labor Statistics (BLS) is set to report its report for the producer price index (PPI) for November on Friday, tracking inflation from the perspectives of businesses and wholesalers. Market Consensus Estimates show that PPI has risen by 0.2%, the same as in September and October.
US PPI MoM, Source:Investing.com
On an annual basis, PPI is estimated to have decelerated from 8% in October to 7.2%, while core producer prices, which exclude food & energy, are expected to have decelerated from 6.7% in October to 5.9, marking the slowest annual increase since July 2021. PPI is a leading indicator of inflation, and the current forecasts could indicate that inflation is slowing down to the 2.0% annual target, which is healthy for the economy.
Consumer Sentiment Index
Markets will Track the preliminary reading of the consumer sentiment index for the month of December, which is set to be released by the University of Michigan on Friday. The Consumer Sentiment Index, which tracks consumer confidence, is projected to inch up to 57 as compared to the November reading of 56.8.
Consumer Sentiment Index, Source:TradingEconomics.com
Overall, consumer confidence has sharply rebounded from the record low of 50 set in June when consumers were hit with all-time high inflation and economic slowdown. Low unemployment and lower gas prices should ensure that the index keeps inching up over the next year, proving to be a boost to the markets.
Technical Indicators
S&P 500 Chart, Source:TradingView
The S&P 500 Index is now down 11.05% for the year. The Fear and Greed Index is now at 63, which indicates that investors are bullish about stocks.
1-Week Relative Performance, Source:Finviz
The three best-performing industries for the past week were Consumer Cyclical, Communication Services, and Basic Materials, which delivered returns of 3.74%, 3.01%, and 2.85%, respectively.
Bottom Line
US Market Indices have continued to remain resilient, despite an aggressive stance by the Federal Reserve to bring down inflation through increased monetary tightening, prompting fears of a recession and higher unemployment. The week ahead is packed with Inflation and Consumer Sentiment Data, which will drive markets.
In recent weeks, markets have continued to drop due to higher inflation and a weakening economy. Key corporate earnings and housing market updates will clearly depict where indices could be headed next.
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