Market Highlights

Economic

• December consumer confidence rose to 108.3, above expectations as inflation came down
• Retail sales fell 1.1% in December, with auto sales at 14.6 million units, below estimates
• Non-farm payrolls in December increased to 223,000, above estimates of 205,000
• Unemployment fell to 3.5%, with underemployment falling to 6.5%
• U.S. industrial production fell -0.7%, in December, after a drop -0.2% in November
• Housing prices continue to fall, as 30-year fixed mortgages rates stand at 6.2%
• New home construction numbers were 1.3 million in December, above estimates
• Existing home sales were down at 4.02 million in December, as mortgage applications dropped
• U.S. manufacturing is contracting, with December ISM at 48.4, below estimates
• Personal income was up 0.3% and consumer spending was up 0.1% in December
• GDP was up 3.2% in the third quarter, and fourth quarter estimated to grow 2%

Inflation

• December core inflation was 6.5% for CPI and 6.2% for PPI on a year-over-year basis
• Crude oil rose to $81 off the recent low of $71, as China reopens
• Inflation is starting to come down from its highs but is still above the FED target

Monetary Policy

• The Fed increased the Fed Funds rate to 4.5% and the Discount rate to 4.5%
• The Fed is expected to raise rates by 25 basis points in February and again in March
• The Fed will continue to raise rates above 5% as inflation has remained stubborn

International

• China has stopped its zero COVID lockdown, as riots broke out all over the country
• Brazil had riots to protest the recent presidential election
• The Dollar has come down verses other currencies helping countries around the globe
• The Russian war with Ukraine continues as NATO support has poured in to help

Interest Rates

• Ten-year Treasury yields rose from 3.6% to 4.25% and now stand at 3.48%
• Libor, the inter-bank lending standard, is 4.81%, and is set to be phased out
• Mortgage rates fell, as the 30-year fixed rate decreased to 6.2%
• Yields on international debt have remained positive, ending the free money period

Earnings

• Reported corporate earnings are beating estimates 67% of the time and revenues are beating 64%
• 2022 earnings are projected to grow 4%, down from 8%, as earnings have been revised
• Earnings have decelerated, as foreign exchange rates and higher interest rates take hold

Market Outlook

• In 2022, the S&P 500 ended down -19% and the tech heavy Nasdaq market was down -33%
• Market volatility remains as the Fed tries to find a terminal rate to bring inflation down
• Energy, Industrials, and Materials were the best performing sectors
• The S&P 500 is trading at 16.7 times forward earnings, below its 25-year average

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