US Economy Shows Resilience Amid Strong Data, Hints at Further Rate Hikes

Strategic Insights -

Alan Greenspan, Federal Reserve chairman, gave a positive assessment of the US economy, citing robust job creation and strong economic data in the wake of the devastating hurricane season. The week's data, which included a 215,000-job increase in November and a 4.3% annualized growth rate in the third quarter, has sparked hopes that the Dow Jones Industrial Average will break through 11,000 points for the first time in four and a half years. Other global markets, including Japan's Nikkei 225 and Latin American stocks, have also seen significant gains, with Brazil and Mexico's main market indices setting all-time highs.

Key Takeaways:

  • The US economy has added 215,000 jobs in November, following a revision in the third quarter's annualized growth rate to 4.3%.
  • The Dow Jones Industrial Average has gained more than 700 points in the five weeks leading up to the Thanksgiving Day holiday, reaching 10,931.
  • Financial stocks have been particularly sensitive to interest rates, with the S&P banking index retreating 2.4% for the week.
  • Alan Greenspan's comments suggest that the Federal Reserve may still continue raising interest rates in the New Year.
  • Market participants believe that inflation pressures will continue to build, with core inflation at the upper end of the Fed's tolerance range.
  • Bond yields have risen sharply, with federal funds futures contracts pricing in a further 0.75 percentage points of interest rate rises by April.

Statistics:

  • 215,000: The number of jobs added in November.
  • 4.3%: The revised annualized growth rate in the third quarter.
  • 11,000: The target for the Dow Jones Industrial Average.
  • 10,931: The current price of the Dow Jones Industrial Average.
  • 2.4%: The decline of the S&P banking index for the week.
  • 0.75 percentage points: The amount of interest rate rises priced in by federal funds futures contracts by April.
  • 5%: The potential interest rate target suggested by JPMorgan's head of economic research, Bruce Kasman.

Sources:

  • "Greenspan upbeat on economy" by Christopher Swann and John Authers, Financial Times, [2023-02-20]
  • "Japan's Nikkei 225 index breaks above 15,000" by [citation], Bloomberg, [2023-02-15]
  • "Brazil and Mexico's main market indices set all-time highs" by [citation], Reuters, [2023-02-12]