Weekly Macro Minute

GuideStone Reflec^tions

Send your bread on the surface of the water,

for after many days you may find it.

Give a portion to seven or even to eight,

for you don’t know what disaster may happen on earth.

Ecclesiastes 11:1 – 2 (CSB)

Why on earth is the Preacher of Ecclesiastes telling us to put bread in the water? And what does soggy bread have to do with living life under God?

But notice that he’s telling us to “send” it. The Hebrew word is salah, meaning to dispatch something with purpose. We are not to not throw our “bread” away randomly; instead, we’re to send it out for a reason. The book of Ecclesiastes is poetry, and much of the imagery is not immediately evident to modern readers. But ancient readers would have understood it as a man loading up a ship with grain to send it away in hopes of selling or trading it for something better. Of course, transporting across the waters is always risky. An unforeseen storm could sweep your ship away. That’s why the Preacher urges the reader to divide the portion among seven or eight ships to ensure that some will make it through. In other words, the Preacher urges us to take a little risk in life but to be wise about it.

God doesn’t want us to live in fear, nor does he want us to live in reserve. His word urges us to try new things and stretch ourselves in new ways – but do it wisely. Just like shipping grain across the water for trade, it may pay off better than we expect, and our lives may be richer for it. We have limited control over what will happen. So, we could watch and wait for those perfect conditions before undertaking any endeavor. But the ideal conditions will never come, and we will waste the days the Lord has given us in waiting.

As we start this new year, remember the word of the Preacher: It’s up to God how things will work out, but it’s up to us to make the most of the time we have.

In the Economy

A difficult December ended a tumultuous 2022 in which geopolitical tensions, inflationary fears and hawkish central bank policy led to significant losses across asset classes. The S&P 500® Index experienced an annual decline of over 18%, its worst since 2008, while bonds experienced their worst annual returns on record (the Bloomberg U.S. Aggregate Bond Index fell over 13%). International equities also succumbed to the macro headwinds, with losses in the teens for most developed markets. Unfortunately, 2023 is unlikely to be all roses, with further market turmoil expected ahead.

A Wall Street Journal article noted that this past year, analysts made the most accurate predictions for corporate earnings since 1995 (although the fourth quarter is still based on estimates). Nevertheless, they missed a bear market driven entirely by earnings multiple contraction on higher interest rates. Looking forward, we believe analysts have it wrong for 2023. Earnings will fall (as opposed to continued growth), and multiples will continue to contract further as rates stay higher for longer than markets expect. On that point, despite the Federal Reserve's intent to push interest rates above 5% in 2023 and hold for a significant period, futures markets indicate a peak near 5% and have priced in nearly two rate cuts during the second half of 2023.

Shares in Europe had muted performance to end the year and were moderately negative for December. Hawkish comments from select European Central Bank members provided pressure on yields that skyrocketed higher in December. In Asian markets, Japanese shares fell but finished the year much stronger than many developed markets at -9.4%. China stocks rose on hopes that Beijing will continue to ease coronavirus restrictions. Although extremely challenging economically today, this move finally puts the impact of the virus in the rearview mirror in 2023.

There was little market-moving economic data to end the last week of the year as China's abrupt changes in COVID rules garnered most of the headlines. A 38.6% year-over-year drop in pending home sales for November was further evidence of significant weakness in housing (the largest decline on record that also brought the absolute level of sales to the lowest on record outside of the COVID era). Manufacturing data showed some better signs of activity, as the Dallas Fed Manufacturing Index showed a positive reading, and the Chicago Purchasing Managers’ Index (PMI) was better than expected. Otherwise, labor market conditions remain essentially unchanged as weekly jobless claims rose to 225,000, still well below the prior peak.

Across the Markets

• Most major U.S. indices finished lower for a second week, leaving the S&P 500^® down over 5% for December.
• Crude oil prices rose to finish the year on weaker inventories, with WTI back over $80/bbl, nearly where it started the month.
• Meanwhile, nationwide prices at the pump bounced later in December from the lowest levels since mid-2021 (but are only up about 10 cents from the bottom).
• The yield curve rose in December, with longer-term rates up notably. The ten-year is at 3.87%, up from 3.5% at the beginning of the month.
• The Atlanta Fed’s GDPNow model estimate for U.S. real GDP growth for the fourth quarter of 2022 jumped to 3.7% at the latest reading, well above other forecasts ranging from approximately 0% to 2.4%.