Weekly Reflection for December 16, 2022

Market Update in Charts

To no one's surprise this week, the Federal Reserve lifted the federal funds rate to a range of 4.0% to 4.5%. The midpoint, charted here, now sits at 4.35% and the is the latest point on a graph that, as far as interest rate increases go, shows the sharpest increase ever in history. Expect the final point on the graph to land around 5.25% next year.

Inflation in November came down to a 7.1% annual rate. This is progress, even as food stubbornly remains one of the most expensive drivers of the overall number.

As worries subside about inflation, they are increasing about the possibility of recession. Shares of energy and other economically sensitive sectors like financials and travel have lagged the broader S&P 500 and Dow Jones Industrial Average indices.

While the work-from-home debate about should we or shouldn't we, drags on, researchers say it is pretty clear that back-to-back meetings, like the way Zoom has scheduled our business lives, is terrible for productivity and our health. Those who take a break to mediate, stretch or get a bite to eat, were far more productive in the same length of meetings than those who crammed everything together. Yellow and red signify anxiety and low engagement where blue and green indicate focus and energy.

There is a lot of be grateful for this time of year, even if you have to dig a little further for the joy at times. As we note in our story below, buying gifts is not as easy in this economic environment. Who to buy for and how much to spend have many stressed and economists have noted that shopping lists have become shorter given that a dollar does not stretch as far these days.

So if any or all activities in the previous chart are on your list of worries, turn on some holiday music. The top songs on rotation are all hits from past years, except for one. (One of these is definitely not like the others.)

Unhappy Unemployed Holidays

December is the second biggest month for corporate layoffs. It begs the question "why?" as it seems particularly Grinch-y to sack a worker during a time that we spend extra on loved ones, travel to see family and anticipate year-end bonuses. It was not always like this. Just a few decades ago, employers were more empathetic to workers and understood the importance of this season to American culture. Lay-offs in December were unheard of. Now, according to the career-coaching firm, Challenger, Gray & Christmas, employers care less. They do lay-offs when it is convenient to the business, not the holiday cycle.

If that makes you disappointed in corporations, you are not alone. The decisions have blow-back and future employees think twice about working for companies that have been known to put employees out on the street at vulnerable times. For now, that is not slowing anyone down. Goldman Sachs, Citigroup and Morgan Stanley are cutting thousands of workers this month. Technology companies, once hiring employees faster than they had space for them, have been cutting staff at a rapid pace. Per Crunchbase, 90,000 tech workers have recently lost their jobs; 20,000 of those are from Meta and Amazon.

One number that has not budged is the overall employment data. There are still far more job openings than there are people looking for work. Although the Federal Reserve has said, with only the tiniest bit of shame, that they would like to see fewer people employed in hopes that will help inflation fall, employment has remained high. There are still over 10 million job openings and 6 million people reporting that they are looking for work. The

unemployment rate has remained at 3.7%, amongst the lowest readings of

the last 50 years.

If you are wondering what the most common month is for lay-offs, it is January.

Where Are The Sales?

Shopping bags appear to be lighter this holiday season, which has been abitter disappointment to Wall Street. The major stock market indices have given up a good chunk of their recent gains as worries have turned to recession. Recession might even be more concerning to investors than inflation these days.

One way we can tell what bothers investors is by looking at the divergence in stock and bond prices. While stocks have been dropping, bonds have been edging up a bit. Although year-to-date, the bond market, as measured here by the U.S. government and corporate bond fund AGG, is down over 12%, more than the Dow Jones Industrial Average (DJIA), down just 10% by comparison. But this month, AGG is up over 1% while the DJIA is off 4%. This indicates that fears over rising rates are abating and investors want to put money back into safety - bonds - over riskier stocks.

Back to the sales numbers - purchases of goods like electronics, clothes, furniture and cars fell in November. Consumers remain more interested in spending their funds on personal care services and going out to eat. Also, we are giving fewer gifts to fewer people. Even though we spent an average of $325 in the weekend following Thanksgiving, which is up 8% over last year, it was not enough to boost the numbers, and soothe Wall Street.

Part of the problem traces back to the average American's bank account balance. With costs of the necessities going sky-high over the last year, there just is not enough to spread around for the gifting season. Our personal savings rate has dropped to just 2.3% of disposable income, the lowest ever (except for that one time in July 2005 when it was 2.1% for a brief moment). We still have some $1.5 trillion in excess savings but that is expected to run out sometime next year, per CEO Jamie Dimon of JP Morgan Chase. Add to that our credit card debt, which is running around $9,000 per household and at credit card interest rates that arein the neighborhood of 16% or more.

So yes, the markets have turned their enthusiasm to fear for now with understandable concern.