Last week’s Consumer Price Index was reported lower than expected. You may have thought the equity markets would have responded positively, as inflation is the reason our markets are sitting at current levels.
Chairman Powell’s press conference sent stock prices lower as the Fed stated on-going rate increases will be appropriate to move inflation back down to 2%. In addition, Powell informed us the labor market is out of balance, with demand substantially exceeding the supply of available workers. To me this is simply old news, however it’s wise to remember to not fight the fed, not just yet!
We’ve now had 2 months in a row that inflation is showing a downward direction.
Housing is struggling, companies are starting to announce layoffs, and last week the retail sales number fell much lower than anticipated. The data is certainly pointing to inflation continuing to abate.
This week welcomes an abundance of pertinent reports including housing starts, consumer confidence, existing home sales, leading economic indicators, new home sales, durable goods orders, and the Fed’s favorite inflation index on Friday – the Personal Consumption Index (PCE).
What’s next for the Fed? No meeting in January, most likely followed by increases to rates at both the February and March meetings. Much will be speculated about the size of these increases! I’m thinking .50% will be the number at both meetings, unless the various inflation components fall much more than expected between now and then. Even if they do fall more than anticipated, Powell will continue his stance on not stopping until we see the whites of the eyes of 2%. I’m still a believer that Powell will change his rhetoric prior, however for now, it’s business as usual!
Stock Prices
The main question investors are debating is how far corporate profits will fall as a result of rate increases and a slowing economy. Most prognosticators are expecting stocks to fall in the 1st half of 2023 and to rebound in the 2nd half, as the Fed finally backs off. Usually when most people agree to the obvious, it rarely plays out.
I’m thinking a “value tilt” with some cash on the sidelines makes sense for early 2023.
Santa Claus Rally?
Will we have a Santa Claus Rally? The time period for the “Santa Rally” is typically seven trading days; the last 5 days of the year and the first 2 of the New Year.
Let’s hope the rally does in fact materialize, although I’m not counting on it.
Happy Holidays to All!
This has certainly been a challenging year for the markets, and for many other topics in the world. My wish for all, is you are able to take some time to relax, refresh your minds, appreciate your loved ones and all the good in your world.
I hope everyone truly enjoys the holiday season and we are refreshed, so to make 2023 a fabulous year!!
