January witnessed stock and bond market indexes all moving higher, as optimism permeated due to tame inflation numbers.
February brought us several higher inflation reports, sending stocks and bonds lower. March rolled in with a positive first week, breaking a 3-week streak of markets moving downward.
Last week, the Dow moved higher by 1.85%, the S&P 500 1.96%, the Nasdaq 2.61%, and the Russell 2000 2.05%.
Foreign stocks also moved higher, gaining 1.81%, with Emerging Markets up 1.68%.
Bond yields have been on the rise over the last few weeks. The 10-Year US Treasury yield rose over 4% for the first time this year, then settled to close the week @ 3.96%.
Inflation… Is there a light??
So, how long will the markets be grappling with inflation? We started to see a dim light at the end of the tunnel prior to the inflation readings released in February.
This Friday, we will hear the job creation report for February. In January, we created 517K jobs. The expectation for February is 190,000 jobs, with the unemployment rate moving slightly higher from 3.4% to 3.5%. Prior to the jobs number, Jerome Powell will take the microphone on Tuesday and Wednesday speaking to Congress. His words will be closely scrutinized for the short-term direction of the markets and interest rates.
Just around the corner is the Consumer Price Index scheduled for release on March 14, then the Fed’s next interest rate meeting on March 22.
So how long? There are more opinions about the next 18 months of our economy than I can recall. I believe we can count on the Federal Reserve continuing to raise rates at least a couple more times, and then not lowering unless a significant inflation or economic reversal.
- Mortgage rates climbed to 6.65% for the average 30-year fixed-rate mortgage. Gas prices now average $3.34/gallon.
- President Biden will release his budget for the next fiscal year. Rumor has it, he will propose increasing taxes on people making over 400K, again. It is doubtful that any new taxes will pass until after the next Presidential and Congressional elections.
- US manufacturing rose for the first time since May 2022, however the readings for the last 4 months all point to contraction.
- Pending home sales increased by 8.1% in January, as prices have been moderating for the last 6 months.
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