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Market Update

Markets eyeing potential Fed policy shift, corporates wishing for "Santa Claus rally"

Date:
November 28, 2022
  • Luke Borda headshot

    Authors

    Luke Borda

    Analyst
    Client Relationship Management

    Corporates | Kennett Square, PA

Summary

Last week’s holiday-shortened trading week was packed with activity as Fed minutes revealed a change in tone around the Central Bank’s hawkish stance on interest rate tightening. Global corporates will also be monitoring Black Friday consumer activity as an indication on whether a potential Santa Claus rally will boost equities to close a year where nearly 16% of total S&P 500 value has been lost to market headwinds.

Bond yields dip on anticipated Fed policy pivot

Last week, U.S. 10Y yields dipped to their lowest levels since early October. Recessionary fears loomed across both 2023 U.S. and global economic outlooks, prompting investors to anticipate a potential policy pivot from the Federal Reserve in the coming months. Released last week, minutes from November’s Fed meeting revealed the ultra-hawkish tone has begun to slowly give way to concerns over the health of the American economy. Notably, officials remarked that a recession is now the baseline projection of weak domestic growth, spooking markets, which are now bracing for a prolonged period of slowed economic activity.

Across the Atlantic, the European Central Bank distanced itself from its American counterpart from a policy standpoint, recently doubling down that its current tightening cycle is “far from over” even in the face of Europe’s current recessionary trajectory. Investors anticipate continued European rate hikes in the months to come, moving the euro to $1.04, which is close to its highest mark posted since early July.

“Santa Claus rally” on the wish list for corporates this holiday season

Global corporates are hoping for a boost to their top and bottom lines to end the year as Black Friday kicks off the 2022 holiday spending season. Viewed by economists as a key bellwether for consumer confidence, retailers, technology manufacturers, and companies across industries are closely monitoring Black Friday consumer activity amid persistently stubborn supply chain bottlenecks and inflation, which has whittled away consumer purchasing power throughout the year.

After losing 12.27% of its value over the past 12 months, the S&P 500 fell an additional 5.26% this past month alone. Corporates and markets alike will cautiously await whether a potential rally in equity markets will positively impact total market capitalization to end the year.

The week ahead

Markets reopened today from a holiday-shortened trading week to a busy data week. The consumer confidence index will be released on Tuesday, the Fed’s beige book will be published Wednesday afternoon, and a critical non-farm payrolls report on Friday morning will provide markets with an indication of whether the economy is weathering the Fed’s tightening cycle.

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About the author

  • Luke Borda

    Analyst
    Client Relationship Management

    Corporates | Kennett Square, PA

    Luke is an analyst on Chatham’s relationship management team, supporting client relationships across the western United States. His team partners with corporate clients to solve complex interest rate, FX, and commodity risk management challenges.

Disclaimers

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.

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