Last week saw U.S. stocks rise 1.13%, capping off a second consecutive strong month. Developed markets ex-U.S. and emerging markets outperformed the S&P 500 by 5.09% and 9.26%, respectively, last month, each the most since May 2009 as global yields fell and the dollar declined. Friday disrupted this risk-on narrative as another strong jobs report, which included above-consensus wage gains, sent stocks lower. The S&P 500 enters December – historically a strong month for equities – amid a 13% gain over the past 51 days, a rally that looks quite like the summer rebound that delivered returns of 17% over 61 days.
Yields fell halfway through the week as hopes for a Fed pivot were reignited by a weak ISM manufacturing report and a perceived less hawkish speech from Chair Powell. Despite rates climbing on Fri. on the strong jobs report, 10-year yields ended the down -19bps, driving more curve inversion. The Fed funds terminal rate fell to 4.92%, the lowest in two weeks, and markets cemented expectations for a 50bps hike in Dec. FOMC officials are now in their blackout period for policy communications until the Dec. 14th meeting.
Crude oil prices rebounded last week and continue to move with heightened sensitivity to developments in China. COVID policy-linked protests, combined with Beijing’s claim it would look to bolster vaccination in seniors, improved sentiment. OPEC+ met over the weekend and announced production levels would remain unchanged ahead of the implementation of Europe’s sanctions on Russian oil.
Strong data reinforced the positive momentum still driving the U.S. economy. The 263,000 payroll gain in November was an upside surprise, with solid job gains in manufacturing, construction and leisure & hospitality sectors. More troubling to policymakers could be the 0.6% m/m jump in average hourly earnings, bringing annual wage gains up to 5.1% y/y, a level wholly inconsistent with their 2% inflation target. Personal income and spending data for October showed wages up 0.5% m/m, fueling a robust 0.5% increase in inflation-adjusted spending pace. Early reports from Black Friday also point to consumer strength, based on both foot traffic and online shopping.
Source: Bureau of Labor Statistics, as of 12/2/2022.