A Bumpy Week for Stocks as the Fed Updates Expectations

• In what turned out to be a rocky week, global markets were negative across the board. We saw global markets (represented by the MSCI All Country World Index) down -1.5% and domestic stocks (represented by the S&P 500 Index) down -1.9%.
• In their final meeting of 2021, the Federal Reserve announced some expected adjustments to their path forward. The members of the Fed expect to finish up their asset purchase taper by March, which is quicker than was previously announced in November. The asset tapering means they are still adding money to markets, but doing so at a slowing rate. Additionally, they expect to raise rates next year, with some voting officials expecting three separate increases.
• In addition to guidance on monetary policy, Fed Chair Jerome Powell also discussed the state of the economy. As expected, he sees strength in many economic areas and believes that consumer demand is still very strong.
• The first domino has fallen in regards to global central banks. The Bank of England decided to raise their benchmark rate last week and became the first major bank to do so since the pandemic started.
• The November retail sales report was announced last week. The report showed that sales at U.S. retail stores, online, and restaurants rose by 0.3%. It was a bit below expectations and a little disappointing given the 1.8% rise in the October report.
• I thought the below chart was an interesting one from Nuveen’s 2022 outlook. While we’ve seen consumer spending very strong over the last year, it is interesting to see the percentage of spending that is going to goods over services. This is partially still due to the pandemic and also has an effect on inflation. When we deconstruct what’s driving inflation, the goods side of the market will have seen stronger price increases over the services side. This will be a good area to monitor moving forward.

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.