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Weekly Market Update for November 23, 2022

by Jim Ulland

My Market Update is out today since Thanksgiving is tomorrow. The market will close at noon on Friday (as will our office). You’d expect the market to be quiet on this holiday-dominated week and it has been.

The news of the week came from the Fed. Through speeches by the members of the Fed Board and the minutes of the last meeting, which were released Wednesday, the Fed seemed to be signaling that the size of the interest rate increases would diminish. The market also hopes that the Fed to stop increasing rates sometime in the spring of 2023. For the Fed to stop raising rates, there must be a continuous flow of data showing inflation is coming down. The data so far is encouraging, but only represents the last few months. On December 13, the CPI will be released. This announcement will be critical to maintaining the downward trend for inflation. The report on 12/2 showing new jobs created in November will also move the market and influence the Fed. Unemployment filings this week were the highest since mid-August, perhaps foreshadowing a weak new jobs report. Weaker numbers of new jobs are expected to dampen wage increases, a major factor in higher prices of goods and services.

Those with the gloomiest view on the economy are concerned that the Fed will wait too long to pause rate increases. Since the impact of rate increases takes months to filter into the economy, the full negative impact of higher rates is not known. That problem is coupled with the fact that the Fed has not been great at timing rate changes in the past. For instance, the Fed left interest rates too low for too long and is partially responsible for our current rate of inflation. Other gloomy factors include corporate earnings. As the economy slows, so will corporate earnings. If earnings trend down, as expected, the stock market will have a headwind.

A slowing economy is beneficial for fixed income. Interest rates normally fall during economically slow periods. Lower rates usually trigger a recovery in the price of bonds and preferred stocks. We expect this recovery to accelerate and be particularly strong in 2023.

For the first three days of the week, the 10-yr Treasury was down 12bp to 3.70%. Monday the S&P 500 was -0.39%, Tuesday +1.36%, Wednesday +0.60%, and Thursday will be Thanksgiving. For the first three days of the week, the S&P 500 was +1.57% and the NASDAQ +1.25%.

Next week will be all about the report on jobs created in November. A low number will show the Fed’s rate increases are having an impact. This would support slowing rate hikes. Unfortunately, “bad news is good news” for the jobs report. All the Best during Thanksgiving. We certainly are thankful for our clients and their trust in us to help manage their investments during these complicated times.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464