US stocks wobble on hot inflation data and recession risks 

The Labor Department said Friday its Producer Price Index (PPI) for final demand advanced 0.3% in November, seasonally adjusted. It’s above economists' forecasts. In the 12 months through November, the PPI rose by 7.4%. Recession fears have also dominated attention this week with the current inversion in the Treasury yield curve. Two-year yield still exceeds 10-year by more than 75 basis points, flashing a warning signal for a potential recession next year.

Inflationary pressures and recession risks rocked US stock markets ahead of the Fed meeting next week. It is most likely that the central bank will increase the level of interest rate to half a percentage point. Wall Street’s main indexes wiped out the gains made in the previous two weeks. The Dow Jones Industrial Average fell 2.77% (down 7.88% year-to-date), or 953 points, the S&P 500 lost 3.37% (down 17.45% YTD) and the Nasdaq Composite tumbled nearly 4% at 11,004.62 (down 29.66% YTD). 

European stock indexes followed suit, though to a lesser extent. The MSCI EMU slipped 1.06% (down 11.65% for the year). The FTSE did not fare better. It fell 1.05% week-over-week but remained up 1.25% over the year.

By contrast, Japanese and Chinese markets bucked the trend. The Nikkei was up 0.44% (down 3.09% YTD) but the best performance came from China. Beijing announced a significant shift towards living with Covid-19, despite the country’s fragile healthcare system and vaccination failure. The Shanghai composite gained 1.61%, bringing its YTD performance to -11.89% and extending its winning streak to six weeks, the longest since January 2020.

A sea of red swamps all the S&P sectors  

For the eighth time this year, all the economic sectors closed in the red. Energy was the hardest hit (-8.40%) as oil prices fell to their lowest level this year in the wake of the global economic slowdown. Crude Oil WTI Futures were down 11.20% to $71.02 a barrel. It was also a tough week for communication services (down 5.39%), pushed lower by Meta Platforms (META: -6.15%) and Alphabet (GOOG: -7.70%). Though University of Michigan’s consumer sentiment reading for December was stronger than expected (59.1 vs 56.9 expected and 56.8 last month), the consumer discretionary index shed 4.48%, pressured by Amazon (AMZN: -5.35%).

Defensive sectors such as consumer staples (-1.83%), health care (-1.29%), and utilities (-0.32%) did not weather the storm but fared a little better than the broad market.