{"id":12102,"date":"2022-12-05T14:07:51","date_gmt":"2022-12-05T14:07:51","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12102"},"modified":"2022-12-05T14:07:51","modified_gmt":"2022-12-05T14:07:51","slug":"fed-less-hawkish-on-rate-hikes-chinas-cooling-economy-inverted-yield-curve","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/fed-less-hawkish-on-rate-hikes-chinas-cooling-economy-inverted-yield-curve\/","title":{"rendered":"Fed ‘Less Hawkish’ on Rate Hikes, China’s Cooling Economy, Inverted Yield Curve"},"content":{"rendered":"\n

With all the recent headlines surrounding the current state of the market, we are taking a deeper dive into key factors that we believe investors should keep an eye on, such as:<\/p>\n\n\n\n

Stocks Soar Following Fed Chairman Powell\u2019s \u2018Less Hawkish\u2019 Speech <\/strong><\/a>\u2013 <\/strong>Federal Reserve Chairman Jerome Powell gave a speech on Wednesday that sent stocks soaring. In comments delivered at an event at the Brookings Institution, Powell made comments that were \u2018less hawkish\u2019 than the Fed\u2019s narrative on inflation and interest rates so far in 2022. We are intentionally using the phrase \u2018less hawkish\u2019 instead of \u2018dovish\u2019 here because the Fed Chairman certainly did not change his overall tone about the inflation fight. Powell said that \u201cthe time for moderating the pace of rate increases may come as soon as the December meeting,\u201d but also that \u201cwage growth remains well above levels that would be consistent with 2% inflation.\u201d Powell still believes that the labor market is too strong, which signals that the Fed\u2019s work in slowing price pressures is by no means done. Nevertheless, the equity markets seemed to take his comments as a strong signal that the December rate hike will come in at 50 basis points, which is a step down from the four consecutive 75 bp increases at previous meetings. The market also seemed pleased to hear Chairman Powell acknowledge that rate increases take time to work their way through the economy, which indicates the Fed\u2019s sensitivity to going too far in monetary tightening. As we have written before, the market is looking for clues that the inflation and interest rate cycle are approaching their respective peaks. Powell\u2019s speech offered one such clue.1<\/sup><\/p>\n\n\n\n

____________________________________________________________________________________________________________________<\/sup><\/p>\n\n\n\n

Retiring Soon? Get Our Retiree Checklist!<\/u><\/strong>
<\/a>\u00a0
2023 is around the corner \u2013 which means a fresh start for investors! You may still feel uncertain about the market\u2019s performance within the next few months, and we understand how difficult it can be to make future financial decisions \u2013 especially for those who are trying to build their retirement portfolio.<\/p>\n\n\n\n

That doesn\u2019t mean you can\u2019t make the most of this new phase in your life!<\/p>\n\n\n\n

To help you do this, we are offering readers our free guide that provides a step-by-step blueprint to potentially help you build a sound retirement portfolio. This guide offers you a checklist of the most important financial, tax, and investment considerations for new retirees, with detailed explanations to help you prepare for this new stage in your life.<\/p>\n\n\n\n

If you have $500,000 or more to invest, get our free guide today!<\/p>\n\n\n\n

\u00a0
Download Zacks Guide, Looking to Retire Soon2<\/sup><\/a><\/strong><\/p>\n\n\n\n

____________________________________________________________________________________________________________________<\/sup><\/p>\n\n\n\n

Protests Sweep Through China as Growth Continues to Cool \u2013 <\/strong>China\u2019s zero-Covid policies are causing problems for its economy and, in the latest twist, its citizens. Let\u2019s start with economic activity \u2013 in November, activity in China\u2019s manufacturing sector measured by the purchasing managers\u2019 index fell to 48 from 49.2 in October, marking two consecutive months of contracting. The manufacturing sector is of greater importance in China than it is in the United States, given China\u2019s export-driven focus. Another index that measures activity in the services and construction sector in China fell month-over-month in November, to a very weak 46.7. All told, China\u2019s economy grew by 3% in the first three quarters of 2022, a far cry from the 6+% growth the investment community has come to expect from the world\u2019s second-largest economy. The decline in economic activity began with the implosion of China\u2019s Evergrande earlier in the year, the second-largest property developer in the country. Last week, the economic woes took on a new face with protests erupting in major Chinese cities, as citizens grow increasingly frustrated with rolling lockdowns and draconian measures designed to stamp out the virus. How China\u2019s government responds, and whether zero-Covid remains a policy in force, will be a crucial story to watch as it relates to China\u2019s economic growth \u2013 and by extension growth in the global economy \u2013 in the new year.3<\/sup><\/p>\n\n\n\n

Major Yield Curve Inversion \u2013 <\/strong>The yield curve\u2019s inversion has gone from modest to significant in the last couple of weeks. The yield curve is often measured by the difference between the 2-year Treasury bond yield and the 10-year Treasury bond yield, and by that measure, the gap between the two reached 0.78% last week \u2013 the largest negative gap since late 1981. Our preferred look at the yield curve \u2013 the difference between the 3-month U.S. Treasury bond yield and the 10-year \u2013 has also turned negative, with the 3-month U.S. Treasury bond yielding 4.37% and the 10-year U.S. Treasury bond yielding 3.68%.4<\/sup> As readers can see in the chart below, each time the 3-month\/10-year yield curve inverted in the last 40+ years, a recession followed.5<\/sup><\/p>\n\n\n\n

U.S. Yield Curve (10-Year U.S. Treasury Minus 3-Month)<\/strong><\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis6<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

A recession may be nigh, but there is another very distinct possibility when it comes to the yield curve: investors may be pricing in a future with lower inflation, not an impending economic downturn. On one level, when longer-term Treasury bond yields are lower than short-term yields, it means investors think the fed-funds rate will be lower in the future than it is now \u2013 likely because the Fed will need to cut rates to revive a slowing economy. The market may be betting that inflation will be low enough next year to allow the Fed to take this action.<\/p>\n\n\n\n

Planning to Retire This Upcoming Year? <\/strong>\u2013 If you\u2019ve been planning to retire for a while, now is the time to get ready! Retirement marks the end of one life stage, but also the beginning of another\u2014full of new adventures and opportunities. To guide you through this new phase, we recommend a thorough review of your financial and investment situation so you can make any adjustments necessary to keep your plans and lifestyle on track.<\/p>\n\n\n\n

If you have $500,000 or more to invest and want to understand your retirement options, get our guide, Looking to Retire Soon<\/a><\/strong>.<\/em>7 <\/sup>Simply click on the link below to get your copy today!<\/p>\n","protected":false},"excerpt":{"rendered":"

Stocks soar after Powell’s comments suggest moderation of rate increases, China faces slowing growth and protests, significant yield curve inversion <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71,73],"tags":[],"class_list":["post-12102","post","type-post","status-publish","format-standard","hentry","category-private-client-group","category-steady-investors-week"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12102","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12102"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12102\/revisions"}],"predecessor-version":[{"id":12105,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12102\/revisions\/12105"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12102"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12102"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12102"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}