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 December 2022 Market & Economic Recap

December 2022 Market & Economic Recap

Stock Market

The stock market swooned throughout 2022, hitting new lows by percentage decline not seen since the financial crash of 2008. 

By the final bell of 2022, those three major benchmarks performed as follows for the year:

Dow Jones -8.8%

S&P 500 -19.4% 

Nasdaq -33.1%

That also reversed a three-year winning streak for stocks.

For December, the three major indices performed as follows:

Dow Jones -4.2%

S&P 500 -5.9% 

Nasdaq -8.7%


The Consumer Price Index climbed just 0.1% over the previous month, registering lower than forecasts and bringing a sigh of relief. 

Before the December 13th report, economists predicted that the CPI would rise 0.3% in the one month since the last report, but falling energy prices kept inflation in check. 

All-items inflation increased by 7.1% annually, also lower than the estimated 7.3% mark, the smallest monthly increase since December 2021.

That marks two straight months of lower-than-expected inflation readings, bringing hopes that the Fed will register that their rate-tightening campaign is starting to slow the U.S. economy and price growth.

Energy prices (- 1.6%) were the biggest contributor to decreasing inflation, thanks to a 2% decrease in gasoline costs and more. However, food prices rose 0.5% over the month, and shelter prices, which make up about one-third of weighted CPI, rose 0.6% for the month, now a concerning 7.1% higher than this time last year.

Core CPI (less food and energy) rose 0.2% for the month and 6% annually, both lower than the estimated 0.3% and 6.1% increases, respectively.

Interest Rates and the Fed

The Federal Reserve met on December 13-14, raising their benchmark interest rate by 0.50%. That matched predictions and that were only reinforced by the previous day’s encouraging inflation report.

That 0.50% increase comes in lower than the Fed’s previous four 0.75% rate hikes, their most aggressive campaign since the 1980s.

With the Central Bank’s Fed funds rate now at a range of 4.25%-4.5%, it’s reached the highest level since 2007.

Wall Street is pondering how the Fed will handle rate hikes in the near future. While a 0.50% increase does represent a tapering, analysts don’t expect a pause to their rate campaign any time soon. 

Forecasts now predict rates to peak at 5.1% in early 2023, which is 50 basis points higher than previous estimates back in September of this year. 

That much has been confirmed by Fed Chairmen Jerome Powell, who, at the last Fed meeting, said that rates would need to move higher than originally projected as inflation came in hotter than expected. 

Economists generally agree on the Fed funds rate falling to 4.1% in 2024, as core inflation isn’t expected to settle near the Fed’s target rate of 2% until after 2023.

Jobs and Unemployment

In November’s employment report by the U.S. Bureau of Labor Statistics, non-farm payrolls rose by 263,000. That kept the unemployment rate unchanged from the previous month at 3.7%.

The latest jobs numbers are consistent with employment gains over the previous three months, at an average of +282,000. For the year, monthly job growth has averaged +392,000, versus +562,000 average monthly job gains in 2021 for comparison.

For the month, the largest job gains occurred in the sectors of leisure and hospitality (+88,000), health care (+45,000), and government (+42,000). 

Meanwhile, employment fell in retail trade, transportation, and warehousing in November.

Also of note in the U.S. Labor release was a revision of October’s non-farm payrolls up 23,000 to +284,000, while September’s numbers were revised down by 46,000 to +269,000 for that month.

With Fed rate increases aiming to slow the economy, analysts expect the unemployment rate to rise to 4.6% sometime in 2023, remaining around that level through 2024.

The next employment report that will reveal December’s data is set to be released on Friday, January 6, 2023.

Gross Domestic Product

In Q3 2022, the U.S. Gross Domestic Product increased at an annual pace of 3.2 percent. That upwardly revised number surpassed estimates of Q3 GDP (which came in at 2.9 percent) on the back of strong consumer spending.

That number looks hardy compared to the negative 0.6 percent GDP drop we saw in Q2 of 2022.

However, analysts are fully expecting a slowdown when Q4 GDP data is released as ripples from the Fed’s campaign to combat inflation by raising rates continues to spread. A panel of experts also anticipates the U.S. economy growing just 0.5% in 2023, before picking up steam to 1.6% GDP growth in 2024.

When asked for his reaction to these forecasts, Fed chairman Jerome Powell reiterated that slow GDP growth is still growth, and better than the specter of negative GDP dragging the U.S. economy into a recession. 

“I don’t think it would qualify as a recession, because you’ve got positive [GDP] growth,” said Powell. 

The advance estimate for Q4 2022 GDP is set to be released on January 26, 2023.

Mortgage and Housing

Since climbing past 7% in the third quarter of 2022, mortgage rates settled in Q4, falling to a national average of 6.27% for a 30-year-fixed home loan, according to Freddie Mac. 

The Federal Housing Finance Agency released their conforming loan limits for 2023, and they’re all the way up to $726,200 for one-unit properties across most of the country, an increase of $79,000 from 2022. 

In counties designated as high-cost areas, the new conforming loan limit will be $1,089,300 in 2023. (For reference, conforming loans are usually easier to obtain and come with better rates than home loans that don’t fit into that “box.”)

The housing market is experiencing a slowing. According to the National Association of Realtors, existing home sales fell another 7.7% in November (latest data), the tenth month in a row of slower sales volume. 

In November, national home prices were up 3.5% year-over-year, with the existing home sale price at $370,700. In California. By the time 2022 concludes, forecasts place the California median home sale price up 5.2 percent for the year to a median home sale price of $834,400.

Notable Quote

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”

-Ayn Rand