Weekly Macro Minute

GuideStone Reflections

See, the virgin will become pregnant

and give birth to a son,

and they will name him Immanuel

Matthew 1:23 (CSB)

When the angel Gabriel appeared to the young virgin Mary to announce that she was with child, it was a cause of celebration for her. But not for her fiancé Joseph. He found out – along with the rest of the village – when her condition became evident. How painful that must have been for him. All the evidence pointed to a betrayal. By the strict standards of the time, the right thing for him to do would have been to break the engagement or “divorce” her.

But one night, as he wrestled with his thoughts (Matthew 1:20), the Lord appeared to him in a dream with the assurance that Mary had not shamed him. The divinely conceived child she carried had an extraordinary destiny. As Isaiah said, he would be known as Immanuel, or "God with us." The voice of God cut through the din of disappointment and unease to remind Joseph of his presence. As a result, he took Mary as his wife and raised Jesus as his own. No doubt, there were whispers throughout tiny Nazareth about the carpenter dishonored by his wife but who lacked the moral courage to divorce her. But he refused to be afraid of what the future held because he knew God was with him.

We can imagine that as Joseph grappled that night with the difficult choices ahead of him, his feelings ran the gamut, from bewilderment to shame, to dread and then back again. We can visualize him spiraling down a dark path of endless "what-if" scenarios. We can see this because that would have happened to many of us. While we can’t shut off our emotions, we can stop them from spiraling into darkness by remembering one word: Immanuel. God is with us. As Christians, Joseph’s adopted son dwells within us. His presence within us brings peace and strength to face the unknown.

This Christmas season, remember that Jesus came to be with us by becoming one of us. He is truly Immanuel.

In the Economy

Global stocks logged a strong week primarily due to Federal Reserve Chairman Powell’s speech on Wednesday. While almost all market observers would agree that Powell disclosed no new information, he did reinforce the idea that the pace of rate hikes would slow. The rally was befuddling as markets had essentially already fully priced in a 50-basis point funds rate increase for the December meeting. If anything, he leaned into a hawkish tone by stating that rates could remain higher for longer. While the Index is a very small sample size, many noted that the "old economy" stocks that comprise the Dow Jones Industrial Average technically entered a bull market by closing more than 20% above its September 2022 low.

Despite the strong month, nothing has improved fundamentally and, if anything, has continued to deteriorate. According to various academic studies, economies typically don't feel the full effects of tightening monetary policy until 10 to 24 months after implementation. Remember that based on even the shortest time frame estimate, we have yet to fully feel the effects of the Fed’s initial 25-basis point rate hike in March 2022.

Jobs data was the primary focus of the week. The Bureau of Labor Statistics released data showing job openings declined by about 353,000 (to 10.3 million), slightly below consensus. Nonfarm payroll data showed the economy added 263,000 jobs in November, strongly exceeding the estimated 200,000. Average hourly earnings also jumped 0.6% (double the estimate). The jobs data flies in the face of the Fed's anti-inflation efforts and likely reinforces the belief in higher rates for a longer period, coupled with a higher terminal rate. Consumer spending increased by 0.8% in October. On the inflation front, the core Personal Consumption Expenditures Price Index (PCE) came in at 5% year-over-year (down from 5.2% in September). Lastly, the ISM Manufacturing Index registered a reading of 49%, representing the percentage of businesses reporting expansion for the period. The reading was 1.2 percentage points below October and the lowest since May 2020.

Shares in Europe rose for the seventh consecutive week as slightly lower inflation spurred hope that central banks would slow their pace of tightening. Euro area inflation slowed for the first time in 17 months but remained at an eye-popping 10%. Japan bucked the developing market trend, with its indices down roughly -2.5% on average. Weakness was broadly blamed on exporters suffering from Yen strength. All eyes continued to be trained on China as quarantine measures slightly eased in the face of unrest amongst their citizens. Despite China's many headwinds (slowing growth, COVID, etc.), equity markets showed substantial positive growth for November.

Across the Markets

• The S&P 500^® Index rose over 1.2% on the week, with sectors most heavily influenced by technology performing quite well.
• Chairman Powell’s comments regarding the slowing pace of hikes sent the 10-year U.S. Treasury yield downward to end the week at 3.49%, a level not seen since mid-September.
• On the energy front, WTI increased during the week to end at just over $80/bbl, but still off its high of $122/bbl.