Three important pieces of inflation information all came out hotter than expected. The Consumer Price Index registered an increase of .5% for the month of January. The Producer Price Index increased by .7%. Retail sales, not to be outdone, increased in January by a surprising 3%!
This adds uncertainly to the current path for the Fed going forward. This Wednesday, the minutes of the last Fed meeting will be released. Words will be parsed to see how many participants are thinking about a .50% rate increase in March versus .25%. Much of what I have read so far, investors are now starting to suggest the Fed will raise rates 3 more times, instead of 2.
The next Fed meeting is on March 21 – 22. Between now and then, we’ll hear the Fed’s favorite inflation gauge this Friday, the Personal Consumption Index. In the 2nd week of March, we’ll hear the CPI and PPI numbers for February.
This will be very telling, to say the least!
Will the consumer continue to stay resilient and spend money? My answer, yes, as long as there is adequate income and excess savings to do so. Household excess savings ballooned in 2021 to over 2.1 trillion dollars! As of last month, the excess savings has shrunk to approximately .9 trillion dollars. Experts expect the excess to be depleted by summer of this year. What happens when the excess is gone??
Well, there is significant home equity that has been build up over the last few years!!!
Markets Hanging Tough
The markets finished flattish last week, despite the hot inflation reports.
For the week, the Dow finished up .02%, the S&P 500 down (.20%), the Nasdaq and Russell 2000 indexes up .63% and 1.47% respectively.
Bond yields moved higher with the 10-year yielding 3.83%, slightly below where it started 2023 @ 3.84%.
The top performing sector thus far is Consumer Discretionary, up 16.5%. The bottom performing sector, energy, down (3.6%).
The markets have moved higher this year believing the Federal Reserve is almost finished raising rates, and that (falling) corporate profits will again start to rise. Let’s hope this come to fruition sooner than later!
As a reminder, please send us your completed 2022 tax returns once available (feel free to email them over, fax, or drop-off in person!). The sooner we model 2023, the more time we’ll have to plan.