A lack of breadth kept most sectors down for the week.
Only two sectors - Communication Services & Consumer Cyclical - finished in the black last week. Markets got a little spooked by the higher than expected inflation data. The Producer Price Index (PPI) especially surprised, putting year-over-year PPI ahead of CPI (Consumer Price Index), which could be a sign of higher inflation moving forward. And yet, in spite of the data, futures show at least a 97% probability of another Fed rate cut this week when the central bank meets on Wednesday. Lower rates would spur greater economic activity, which would in turn, likely lead to higher inflation.
The yield curve has been inverted for more than two years, but the final leg of the curve (10yr vs 3mth) finally uninverted last week.
This is typically a sign of economic trouble ahead. It can take some time for this indicator to come to fruition, varying from 12 months to 1 month preceding a recession. Meanwhile, investors continue piling into equities. November say record inflows into large cap equity ETFs, while corporate insiders continue selling shares. A lack of breadth is indicative in the number of stocks out-pacing the S&P 500 Index. Currently only 31% of the components of the index are actually out-performing the benchmark - reminiscent of 1999. Investors will be eyeing the language from the Fed to get a clue as to what next year's policy might look like.
Disclosures
The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.
Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
Past Performance does not guarantee future results.
Comments