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Weekly Market Recap: Rising Yields, Record Highs, and Fed Focus Thumbnail

Weekly Market Recap: Rising Yields, Record Highs, and Fed Focus

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Market Overview

Major U.S. indexes ended the week lower after reaching record highs midweek. A well-received consumer inflation report initially propelled the Nasdaq Composite to close above 20,000 for the first time. However, rising Treasury yields presented a headwind for equities. The S&P 500 and Dow Jones Industrial both declined by -0.67% and -1.75%, respectively, while the Nasdaq Composite eked out a modest 0.33% gain.

Emerging markets outperformed, buoyed by optimism around Chinese stimulus. The MSCI EM Index rose 0.33%, while developed international markets struggled amid a rate cut by the ECB and political uncertainty in France and Germany. Commodities rallied, led by oil surging 6.12% on potential sanctions against Russian and Iranian supplies.

Federal Reserve Insights and Economic Roundup

U.S. Treasury yields surged despite markets nearly fully pricing in a rate cut at the Federal Reserve's meeting next week. The 10-year yield climbed more than 25 basis points to reflect increased inflation expectations. This week’s consumer inflation report met expectations but remained above the Fed's 2% target. Core inflation rose 0.3% MoM for the fourth consecutive month, driven largely by housing costs.

Wages, however, outpaced inflation, with real hourly earnings up 1.3% YoY, signaling strong consumer purchasing power entering the new year. Meanwhile, business optimism surged, as indicated by the NFIB report, with 28% of businesses planning to increase capital spending—the highest level since January 2022.

Bottom Line: Inflation is stabilizing, and businesses are confident in future economic growth. The Fed is expected to methodically cut rates to maintain stability.

The Week Ahead

Key economic reports and events to watch include:

  • Monday: Empire Manufacturing, S&P Global US Manufacturing, Services, and Composite PMIs
  • Tuesday: Retail Sales, Industrial Production MoM, NAHB Housing Market Index
  • Wednesday: FOMC Rate Decision, Economic Projections, Housing Starts, Building Permits
  • Thursday: GDP, Personal Consumption, Jobless Claims, Leading Index
  • Friday: Personal Income, Personal Spending, Core and Headline PCE Price Index