A Key Principle In Fruitful Investing

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Wall Street sentiment quickly shifted Thursday and Friday. After November retail sales data from the U.S. Census Bureau and a Federal Reserve System report on industrial production were released Thursday morning, a two-day stock market plunge ensued.

The two bad economic data surprises came after the Federal Reserve Board chair, Jerome Powell, said at a press conference on Wednesday that policymakers had voted at their December 13-14 meeting to raise the central bank’s lending rate by a half-point.

It was the Federal Reserve Bank seventh interest rate hikes in the last 10 months. “We think that we'll have to maintain a restrictive stance of policy for some time,” Mr. Powell said at the 45-minute press conference. “Historical experience cautions strongly against prematurely loosening policy.”

Wall Street initially reacted positively Wednesday after the Fed chair’s remarks. That changed on Thursday.

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November retail sales, excluding gasoline, increased by +6.4% in the 12 months through November. However, after inflation, as measured by the consumer price increase index, retail sales were only up four-tenths of 1%. Eighty-eight percent of retail sales are goods, as opposed to services, and retail sales drive 30% of total U.S. gross domestic product. Meanwhile, U.S. industrial production declined by two-tenths of 1% in November, and manufacturing output decreased six-tenths of 1%.

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The bad data reports were the proximate cause of the shift in sentiment. They made more Wall Street investors doubt whether the Federal Reserve could engineer a soft landing – tightening monetary policy while causing only a slight recession in 2023 or, possibly, no recession at all.

After falling -2.5% on Thursday, the S&P 500 stock index lost another -1.1% on Friday, closing the week at 3,852.36. Down -2.08% from a week ago, the index is up +72.18% from the March 23, 2020, bear market low and 19.68% lower than its January 3rd all-time high.

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This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.

This article was written by a professional financial journalist for Responsive Financial Group, Inc and is not intended as legal or investment advice.

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