Hawkish comments by the Fed and weak economic data heightened investors’ recession concerns and sent stocks lower last week.
The Dow Jones Industrial Average lost 1.66%, while the Standard & Poor’s 500 retreated 2.08%. The Nasdaq Composite index declined 2.72% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.88%.1,2,3
Stocks Under Pressure
Stocks began the week on a positive note, supported by a cooler-than-expected Consumer Price Index (CPI) report. Stocks reversed direction mid-week, however, following the Federal Open Market Committee (FOMC) meeting in which another 0.5% rate hike was announced.
The half-point increase was widely anticipated, but the increase in the terminal rate (i.e., the point at which the Fed stops raising rates) rattled investors. Continued hawkishness by Fed Chair Powell at the post-meeting press conference added to investors’ anxiety. The potential for higher rates for longer, along with disappointing economic data, particularly a sharp decline in retail sales, amplified fears of a recession and sent stocks lower for the remainder of the week.
Inflation and the Fed
The release of November’s CPI showed inflation cooling for the second consecutive month, as prices rose just 0.1% month-over-month and 7.1% from a year ago. Both were better than expected.4
The FOMC ended its last meeting of 2022 by raising interest rates another 0.5% and signaling that it would likely continue to hike rates into the new year. At a subsequent press conference, Fed Chair Powell commented that the next rate increase could be a quarter-percentage point. Most FOMC members appear to support raising the terminal rate (the point at which hikes end) to above 5%, up from its September projection of 4.6%.5
This Week: Key Economic Data
Tuesday: Housing Starts.
Wednesday: Consumer Confidence. Existing Home Sales.
Thursday: Jobless Claims. Gross Domestic Product (GDP). Index of Leading Economic Indicators.
Friday: New Home Sales. Durable Goods Orders. Consumer Sentiment.
Source: Econoday, December 16, 2022
This Week: Companies Reporting Earnings
Tuesday: FedEx Corporation (FDX), Nike, Inc. (NKE), General Mills, Inc. (GIS).
Wednesday: Micron Technology, Inc. (MU).
Source: Zacks, December 16, 2022
Keep Well-Organized Records Until Period of Limitations Expire
Well-organized recordkeeping makes it easier to prepare your tax return and provide evidence of tax deductions. According to the IRS, You must keep records, such as receipts, canceled checks, and other documents that support an item of income, a deduction, or a credit appearing on a return as long as they may become material in the administration of any provision of the Internal Revenue Code. Depending on the assessment, these periods of limitation can range from 3 years to no limit.
There are also periods of limitations for refund claims, which range from 2 years to 7 years. The IRS recommends keeping records of property records, healthcare insurance, and business income and expenses, among other categories.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov6
Name the three English-language three-letter words that begin and end with the letter E.
Last week’s riddle: What item binds two people yet touches only one? Answer: A wedding ring.
Footnotes and Sources
2. The Wall Street Journal, December 16, 2022
3. The Wall Street Journal, December 16, 2022
4. CNBC, December 13, 2022
5. The Wall Street Journal, December 14, 2022
6. IRS.gov, August 8, 2022
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Weekly Market Insights: Recession Concerns, Fed Talk Keep Stocks Cold
December 19, 2022