Market Recap: Stocks Rally, but the Economy is Deteriorating
The stock market has come to a close for today, with the S&P 500 $SPY rallying 1.89%. In addition, the Nasdaq 100 $QQQ increased by 2.86%. In the U.S., the most important piece of economic data came in the form of the Existing Home Sales report.
In essence, the housing market continues to deteriorate,as December represented the 11th consecutive month of decreasing sales. This is in addition to yesterday's Building Permits and Housing Starts reports, which also declined month-over-month. Indeed, the increased costs of borrowing have not been kind to potential homeowners or sellers.
However, don't expect the Federal Reserve to turn dovish anytime soon. Although the central bank may slow down the pace of its interest rate hikes, it'll still ultimately continue to push it higher. Indeed, Fed Governor Waller supports increasing interest rates, albeit at a more normalized pace of 0.25%, at the next Fed meeting. He pointed to core inflation basically moving sideways over the past year as a reason to maintain a restrictive monetary policy.
As a result, companies continue to trim costs where they can in order to prepare for slower economic growth. Alphabet stock joined the growing list of corporate titans with plans to slash jobs. The parent company of Google and YouTube is looking to let go of 12,000 workers. This comes after Microsoft also recently announced that it was planning to lay off 10,000 employees.
Since these companies are publicly traded, they are required to disclose this information to investors. However, it's important to remember that private companies out there don't have to disclose anything but are probably planning a similar course of action. Therefore, when combining this growing trend in cost cutting with restrictive monetary policy that carries a 6 to 12-month lag, an earnings decline across the stock market seems inevitable.
Hope you enjoyed reading! This was taken from our substack, here: https://investorscompass.substack.com/p/market-recap-stocks-rally-but-the
Have a good weekend everyone!
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