The Economy

Last week’s reports showed that prices for consumers and producers continued to rise modestly, while jobless claims increased, suggesting some weakness in the labor market. Small business optimism jumped significantly, reflecting growing confidence. Import prices stayed mostly flat, and wholesale inventories grew slightly. However, the government’s budget deficit expanded sharply in November.

Price Trends
U.S. prices continued to rise last week. In November, the Consumer Price Index (CPI) increased by 0.3%, aligning with forecasts, while annual inflation reached 2.7%. Core CPI, which excludes the more volatile food and energy categories, also rose 0.3% for the month and maintained a 3.3% increase year-over-year. The Producer Price Index (PPI), which tracks prices from suppliers, climbed 0.4% in November—higher than expected—bringing the annual PPI inflation rate to 3%. Meanwhile, Core PPI inched up 0.1% for the month and remained steady at 3.5% for the year.

Labor Market
The labor market showed signs of softening as initial jobless claims rose to 242,000 for the week ending December 7, surpassing the expected 220,000 and the previous week’s total of 224,000. In addition, third-quarter labor costs were revised down to 0.8%, reflecting slower growth than initially estimated. However, productivity growth remained unchanged at 2.2%.

Trade and Inventories
Import prices saw a slight uptick of 0.1% in November, better than the anticipated 0.2% decline. When fuel costs were removed, import prices showed no change. Wholesale inventories expanded by 0.2% in October, meeting expectations and recovering from a 0.2% drop in the prior month.

Federal Budget
The U.S. government reported a monthly budget deficit of $366.8 billion for November. This figure was larger than the projected $350 billion and considerably higher than the deficit recorded in the same month last year.

Business Optimism
Small businesses showed increased confidence in November, as the NFIB optimism index surged to 101.7. This marked a notable improvement over October’s reading of 93.7 and far exceeded expectations of 94.8, signaling greater optimism about economic conditions.

Market Overview

Last week, stocks and bonds declined after the Producer Price Index (PPI) came in higher than expected, raising concerns about inflation. Investors began reconsidering the likelihood of interest rate cuts by the Federal Reserve, triggering a broad sell-off in stocks. Meanwhile, bond yields rose as markets adjusted to the possibility of interest rates remaining high or climbing further.

Domestic Equity Style Boxes
U.S. stocks struggled last week, with losses across most categories. Large-cap growth stocks managed a small gain of 0.36%, but large-value stocks fell close to 2%. Mid-cap and small-cap stocks also performed poorly, recording declines of between 1.3% and 2%, with small growth stocks faring the worst, dropping nearly 2%.

Domestic Sectors
Performance in U.S. sectors was mostly negative. Materials, utilities, and healthcare faced the steepest drops, each falling more than 2%. Energy, financials, and industrials also declined significantly. However, consumer discretionary stocks were a bright spot, rising 1.16% and showing relative strength.

Bonds
Bond markets mirrored the struggles in equities, ending the week in negative territory. The U.S. Aggregate Bond Index fell 1.42%, while high-yield bonds and international corporate bonds also posted declines.

International Stocks
Global markets followed a similar trend, with European and Pacific stocks slipping between 1.3% and 1.9%. Latin American stocks were a rare bright spot, rising 0.48% and showing resilience despite global pressures.

Alternative Assets
Alternative assets performed well last week. Gold edged up by 0.55%, the U.S. dollar climbed 1.10%, and broad commodities surged 3.16%, emerging as the top-performing asset group. Bitcoin hit a significant milestone, breaking through the $100,000 mark, driven by strong ETF inflows and investor optimism.