The Markets – December 20, 2023

Have rates peaked?

Last week, at its final policy meeting for 2023, the United States Federal Reserve indicated that rates may have peaked. After the meeting, Chair Jerome Powell said:

“As we approach the end of the year, it is natural to look back on the progress that has been made toward our dual mandate objectives. Inflation has eased from its highs, and this has come without a significant increase in unemployment. That is very good news…

“While we believe that our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic, and ongoing progress toward our 2 percent inflation objective is not assured. We are prepared to tighten policy further if appropriate. We are committed to…bring inflation sustainably down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective.”

Powell’s post-meeting comments added to positive inflation news from earlier in the week. The annual rate of inflation, as measured by the Consumer Price Index (CPI), fell to 3.1 percent in November from 3.2 percent in October.

The inflation picture wasn’t quite as rosy as that number suggests, though. Both headline inflation (+0.1) and core inflation (which excludes food and energy prices, +0.3) ticked higher month-to-month, and core inflation was 4.0 percent over the previous year.

The primary contributor to annual core inflation was the cost of shelter, which includes rent, owners’ equivalent rent, lodging, and renters’ and homeowners’ insurance. It was responsible for nearly 70 percent of the total increase in core CPI. Key contributors included:

• Shelter index, +6.5 percent
• Personal care index, +5.2 percent
• Auto insurance index, +19.2 percent
• Recreation index, +2.5 percent
• New vehicles index, +1.3 percent

Global stock and bond markets celebrated falling inflation and the likelihood that Fed rate hikes have ended. Vildana Hajric, Jess Menton, Carter Johnson, and Elena Popina of Bloomberg reported:

“Virtually no corner of financial markets was left out of a cross-asset advance which began Wednesday and extended into Thursday trading: Global shares spiked higher, with gauges from the tech heavy Nasdaq 100 to Brazil’s benchmark Ibovespa on track to close at record highs. Short-term Treasuries posted their best day since March, while world currencies surged against the dollar and corporate bonds rallied.”

By the end of the week, major U.S. stock indices were at 52-week highs, and the yield on the benchmark 10-year U.S. Treasury fell to 4.03 percent, reported Brian Evans and Sarah Min of CNBC.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

1. Where in the world do people celebrate the New Year by dressing in bear costumes and dancing?
   • a. Romania
   • b. Canada
   • c. Tibet
   • d. Greenland
2. A Scandinavian retailer introduced a new holiday giveaway in the United Kingdom. The company will gift a few lucky recipients with:
   • a. A 6-foot gingerbread man
   • b. A dozen Lingonberry heart cookies the size of soccer balls
   • c. A turkey-sized Swedish meatball
   • d. A 55-gallon barrel of fermented skate
3. If everyone at your holiday party is having such a good time that they’ve stayed later than you would like, Martha Stewart suggested:
   • a. Setting off the fire alarm
   • b. Saying, “I’m going to bed”
   • c. Turning out the lights
   • d. All of the above
4. In Oaxaca, Mexico, Noche de los Rabanos (Night of the Radishes) is celebrated in December. How is it celebrated?
   • a. By roasting radishes and sharing them with friends
   • b. By carving scenes from folklore and religion onto really big radishes
   • c. By leaving radishes under the windows of homes to attract helpful spirits
   • d. By stomping radishes to make holiday wine

We wish you the happiest of holidays. (Answers are below.)

Weekly Focus – Think About It
“Tradition is a guide and not a jailer.”
—W. Somerset Maugham, playwright

Answers: 1) a; 2) c; 3) d; 4) b

Best regards,

Daniel J. Murphy, CFP®
Murphy Wealth Management Group
60 Merritt Blvd., Suite 106
Fishkill, NY 12524

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please call with their information so that we can get their permission.
Securities offered through LPL Financial
Member FINRA/SIPC
Investment Advice offered through Murphy Wealth Management Group, INC, a Registered Investment Advisor and separate entity from LPL Financial.