Investors are wondering what to do next after a turbulent year. Although it is true that both the stock and bond market have recovered, this year still remains in flux. While the Federal Reserve is mandated to do two things, the United States labor market will determine whether or not there’s a soft landing. Recent labor market strength surprised on the upside and revealed a resilient but gradually softening job market. To slow wage growth, the labor market will have to normalize relative to supply.
Stock market gains have been impressive. The stock market rally has been impressive.
The Producer Price Index, which measures the prices of raw goods on the open market, announced a 0.7% rise in prices for the month of January, the biggest increase since last summer. The Producer Price Index (which measures the prices of raw materials on the open markets) announced that prices rose by 0.7% in January. This was the largest increase since last summer.
Rental prices are up 8.6% over a year ago. Rent prices are up by 8.6% compared to a year earlier.10 Although apartment construction is at a record high, it will still take some time before construction can catch up with the housing demand and slow rent growth. Home construction has already slowed down in January, to an annualized rate 1,31 million homes. This is down from the previous estimate of 1,36 million.
Good news: Inflation has fallen for six months in a row. Market forecasts say that inflation will fall to 4% at the end of 2023, and then below 3% by 2024. Don’t expect a constant, straight-line movement. For example, oil prices and the price of new cars are rising, whereas airline tickets and used vehicle prices are falling.
The labor market remains strong. The unemployment rate is now at 3.4%, its lowest level in 20 years, and the January US jobs report revealed 517,000 new positions, compared to only 185,000 expected.
Markets are still concerned that the Federal Reserve rate hikes and the new jobs will contribute to inflation and drive prices up.
The yields on Treasury notes have increased. The yield of the 2-year bill is now 6 basis points higher at 4.67%. We will continue to monitor the volatility of Treasury yields as inflation and tightening job markets are likely to prompt the Fed to increase interest rates. The Fed has indicated that it expects to soon implement two additional quarter-point increases. Dallas Fed President Lorie Log said that the Federal Reserve must “remain prepared to continue rates increases for a much longer period than originally anticipated.”17
The fears of a recession last year continue to diminish. Goldman Sachs economists have recently reduced their odds of a 2023 recession from 35% to 25%.
We will watch to see if Congress can reach a deal by June to raise the ceiling of the debt, at which point the Treasury Department would no longer be able to pay its bills.
But the fear of a recession is not completely gone. In 2023, and beyond, expect the unexpected. Cash can be your best friend when you’re on the defensive.
SIPC. Mark Martiak is a regular contributor to VEGAS LEGIAL MAGAZINE. He has also appeared on CNBC’s CLOSING Bell, Yahoo! FINANCE MIDDAY MARKET MOVERS FOX BUSINESS NETWORK, and was quoted in the WALL STREET JOURNAL. Martiak Market Update podcast is available wherever you listen.
Josh Silverman’s research. These forward-looking statements may be subject to substantial business, economic, and competitive uncertainties. Actual results could differ materially. The opinions expressed here can change at any moment and are solely the opinion of each strategist. The data is gathered from sources that are generally regarded as reliable but accuracy cannot be guaranteed. Investors cannot invest directly in any index because they are unmanaged. Past performance does not guarantee future results.
The news items are based upon reports from multiple widely available international sources (i.e. wire services). They are then independently verified, if necessary, with secondary sources, such as government agencies or corporate press releases. The information provided is from sources that are deemed reliable. However, there is no guarantee or warranty as to the accuracy or completeness of this material. The information or opinions expressed in this document do not constitute a solicitation to buy or sell securities and are not intended as financial advice. Forecasts are made based on the current market conditions and can change. They may not be realized. The federal government guarantees the timely payment principal and interest on U.S. Treasury Securities. Treasury securities and other bond principal values fluctuate with market conditions. Bonds are exposed to credit, inflation and interest rate risks. Bond prices tend to fall as interest rates increase. Bonds that are sold or redeemed before maturity can result in a loss. Past performance does not guarantee future results. There is always a risk involved in investing, including the loss of your principal. No strategy can guarantee success.
The Dow Jones Industrial Average is an index that combines 30 blue-chip U.S. stocks. The S&P 500 index is a market capitalization-weighted index that includes the 500 largest publicly traded companies from the leading sectors of the U.S. economic system. The NASDAQ Composite Index (NASDAQCI) is a market value-weighted index that includes all stocks listed on NASDAQ. The Russell 2000 index is a market cap weighted index that includes 2,000 small-cap stocks in the United States. Global Dow is a weighted equal index that includes 150 blue-chip stocks traded worldwide. The U.S. Dollar Index (USDI) is a geometrically weighed index that measures the relative value of the U.S. Dollar to six different foreign currencies. The indexes are unmanaged, and not for direct investments.
1 Louis Navellier’s “The State of the Market at Mid-Quarter,” Seeking Alpha. 2/14/23
Christopher Rugaber of the Associated Press: “Retail sales rise as Americans resist inflation and rate hikes,” 2/15/23
3 Associated Press “Retail Sales Jump as Americans Defy Inflation and Rate Hikes,” Christopher Rugaber 2/15/23
4 Associated Press “Retail Sales Jump as Americans Defy Inflation and Rate Hikes,” Christopher Rugaber 2/15/23
5 Yahoo Finance “Stock Market News Today: Stocks Fall, Bond Yields Higher, and Bitcoin Rallies,” Dani Romero 2/16/23
US Bureau of Labor Statistics, The Consumer Price Index for All Urban Consumers grew by 5.0 percent in the past 12 months. It now stands at 301.836 (1982-1984=100). The index rose 0.3 percent for the month before seasonal adjustment.
7 CNBC.com: “Wholesale Prices rose 0.7% more than expected in January, Fueling Inflation Increase,” Jeff Cox 2/16/23
8 CNBC.com: “Dow drops nearly 200 points following another hot inflation report,” Sarah Min 2/16/23
9 Bloomberg News “Oil Slips As US Supply Build Overshadows Strengthening China Outlook,” Immanual John Milton, and Natalia Kniazhevich. 2/15/23
USA Today 10 “CPI Report revealed inflated housing costs.” What it means for rent and mortgages,” Swapna Ramaswamy. 2/14/23
11 U.S. Census Bureau “Monthly New Residential Construction January 2023,” 2/16/23
CPI report revealed an inflated housing cost. 12 USA Today. What it means for rent and mortgages, Swapna Ramaswamy. 2/14/23
13 “Can the rally in the stock market continue?” Mona Mahajan Senior, “Weighing the pros of the future path,” Investment Strategist, Edward Jones 2/13/23
CNBC.com: “Inflation rose by 0.5% more than expected in January and is up 6.4% compared to a year earlier,” Jeff Cox. 2/14/23.
Can the market rally continue?” Mona Mahajan Sr Investment Strategist at Edward Jones, 2/13/23
16 U.S. Bureau of Labor Statistics Real Earnings summary, 2/14/23
17 Yahoo News, “Stock market news today: Stocks rise after strong retail sales data,” Alexandra Semenova, 2/15/23
18 Associated Press “Retail Sales Jump as Americans Defy Inflation and Rate Hikes,” Christopher Rugaber 2/15/23
19 Associated Press “Retail Sales Jump as Americans Defy Inflation and Rate Hikes,” Christopher Rugaber 2/15/23
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