businessman shoes stand at junction with arrows in each

A Big Week for the Markets - Will Optimism be Detoured?

December 12, 2022

Both stocks and bonds rallied in October and November on hopes the Federal Reserve will dial back on its rate hiking cycle.

Since the S&P 500 bottomed out on October 12, it has risen over 10 percent (as of Friday). For fixed income, the Barclays Aggregate U.S. Bond Index has gained over 5% on a total return basis since its year-to-date low on October 24. However, both stocks and bonds remain in negative territory for the year.

A Telling Week Ahead

Ultimately, two key events this week could change investors’ recent optimism and determine where indices end 2022.

November's Consumer Price Index

First, we get an updated inflation picture with the release of the November Consumer Price Index (CPI) on Tuesday. Inflation has been the number one driver for financial markets this year. Why? Inflation has not been this high or persistent in over 40 years. Headline inflation peaked at 9.1% year-over-year back in June and was 7.7% in October. The expectation is CPI will decline to 7.3% year-over-year. Inflation is moving in the right direction but we are still a long way from the Fed’s goal of 2%.

Fed Will Meet this Week to Close 2022

This leads into the second event, the Federal Reserve’s Federal Open Market Committee (FOMC) meeting. This is the last policy meeting for the year and will be an eventful one. The expectation is the Fed will raise the federal funds rate by 0.50% to a new range of 4.25-4.5%. In addition , the Fed will release updated economic and interest rates projections for 2023 along with Federal Reserve Chairman Jerome Powell holding a press conference. This will give investors an idea on how many more rate increases we could see before policy members pause to assess the impact of its actions to date.

The outcome of these events will give us an idea on what to expect for next year. The Federal Reserve wants to see clear progress on the inflation front before pressing on the brakes with respect to rate increases. Chair Powell has made it clear in previous communications that the Fed is committed to bringing inflation down and will “keep at it until the job is done.”

Buckle your seat belt and prepare for an interesting and likely volatile week for the financial markets!

In the meantime, if you have any questions or would like to discuss inflation and the Fed in greater detail, please reach out to us today.

About the Author

Krista Biernbaum, CFP®, CIMA®

Krista Biernbaum is an Investment Management Officer within the Security National Wealth Management division. As an Investment Management Officer, she manages client portfolios, analyzes securities and performs daily trading activities. A Certified Financial Planner (CFP®) and Certified Investment Management Analyst (CIMA®), Krista holds a Bachelor of Science degree in mathematics from Wayne State College.