Weekly Economic Update: December 28, 2023

Presented by Nicholas Wealth Management

Finishing 2023 strong With one more week to go in 2023, U.S. equity markets are on a winning streak. Last week got off to a strong start, as San Francisco Federal Reserve Bank President Mary Daly said in an interview with the Wall Street Journal that short-term interest rates would still be “quite restrictive” even if the Fed cuts the federal funds rate three times next year. She also noted that the Fed must be forward-looking and make sure “we don’t give people price stability but take away jobs.” Richmond Federal Reserve Bank President Tom Barkin seemed to agree somewhat in his comments on Tuesday when he said, “We’re making good progress on inflation. I think that just makes the case to balance the perspective between both sides of our mandate, inflation and employment.” Still, he said the Fed needs to keep the option of another rate hike on the table if inflation doesn’t continue to come down. Comments like these have helped boost optimism that we may avoid a recession next year. And the data seems to support this outlook. The core personal consumption expenditures (PCE) index — the Fed’s preferred inflation gauge, which measures prices minus food and energy — rose only 0.1% in November. And overall PCE fell 0.1% in November, its first decline in 21 months. Other data was also positive last week. The housing market had a little bump, with new housing starts jumping 14.8% in November. The consumer confidence index rose to its highest level since July, while durable goods orders saw their biggest increase since July 2020. All of this has been a gift to investors during the holiday season. We’re ending the year on a much brighter note than we entered it. If someone had said on Jan. 1 that the S&P 500 would grow by 20% this year, they probably would have looked foolishly optimistic. Yet here we are, with the S&P 500 up 23%, the Nasdaq up 43% and the Dow up almost 13%. It’s proof once again of the importance of overlooking short-term market events and that staying patient usually pays off. Coming this week

• It’s a short week, and trading will likely be light as people savor the holiday slowdown.
• Data will also be scant this week. We’ll see the bulk of it on Thursday, including initial jobless claims, advanced wholesale and retail inventories, and pending home sales.
• The bond market closes early on Friday ahead of the long holiday weekend.

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