Despite the rally witnessed on Friday, equity indices in the United States ended the last week in the red. While the S&P 500 index declined by 0.7%, the Nasdaq Composite index fell by 1.6% in the week ended on November 18.
Treasury yields fell to their lowest level in more than a month but recovered once the Federal Reserve indicated a hawkish stance on the country’s monetary policy. Further, the yield curve inversion deepened as the yield for the 10-year note stood at 3.8% while the two-year note yielded 4.5%. It is the deepest inversion in more than four decades.
Crude oil prices also fell last week as the West Texas Intermediate declined to $78 per barrel on Friday, the lowest price since September. Investors are worried about rising COVID-19 cases in China as well as the tepid global growth outlook that might act as headwinds for energy demand.
Let’s now see what will impact the indices in the next week.
A short week for investors
This week will be a shortened one for investors in the United States as the holiday season gains pace. Thanksgiving will be celebrated on Thursday, while Black Friday marks the beginning of the holiday season. Economists will be closely watching consumer shopping trends as Black Friday has also acted as a bell weather for the retail sector in recent years.
Analysts expect inflation and supply chain bottlenecks to adversely impact consumer spending in 2022, resulting in lower top-line growth of e-commerce and offline retailers.
Data for new home sales in the month of October will be published on Wednesday, while the PMI reading is also expected this week. The PMI provides market participants with insights into the health of the economy, as a reading below 50 indicates an economic contraction, while a reading over 50% indicates economic expansion.
Additionally, earnings reports for companies such as Zoom (NASDAQ: ZM), Dollar Tree (NASDAQ: DLTR), and HP Inc. (NYSE: HPQ) are scheduled this week.
Will interest rates rise further?
The Federal Reserve has increased interest rates multiple times in 2022 primarily to combat inflation. In fact, the regulatory body is also willing to risk the prospect of a recession to drive down inflation which is near 40-year highs.
The Fed will release the meeting minutes of the FOMC’s (Federal Open Market Committee) latest policy meeting on Wednesday. The meeting was conducted earlier this month and will provide clues to the stance of the Fed with respect to interest rate hikes.
In 2022, the central bank has increased treasury yields by 375 basis points since March. Experts forecast another hike of 50 basis points in December, increasing government yields to 4.25% to 4.5% by the end of 2022.
The University of Michigan will release the reading of the Consumer Sentiment Index on Wednesday for the month of November. According to experts, the index reading is projected at 54.7, compared to 59.9 in October.
An article from Investopedia states, “Rising interest rates, persistently high inflation, and uncertainty over the 2022 midterm election results have contributed to declining consumer confidence in recent weeks. The current index reading marks the lowest since July, and is just above an all-time low of 50 hit in June.”
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
