Category Archives: stock market

Current Market Observations

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On Friday, a solid jobs report by the BLS (Bureau of Labor Statistics) pushed equity on bond markets higher as investors hung new hopes for an economic soft landing in 2023 rather than a Fed-induced recession. The economy added 223,000 jobs in December, beating consensus expectations and continuing the string of strong payroll gains. Further, job openings, a measure the Fed pays close attention to, stayed elevated. For the week ended January 6, 2023, the Dow Jones Industrial Average and the S&P 500 Index closed higher by +1.5%, while the NASDAQ moved higher by +1.0%. Lastly, the 10-year US Treasury fell a stunning 24 basis points to close the week at 3.55%.

Economy

As mentioned, the BLS reported a strong number of jobs, and job openings also remained elevated. The unemployment rate fell to 3.5%, presenting yet another piece of stubborn employment data. Chart 1 below from Valley National Financial Advisors and Y Charts shows job openings are elevated and elevated not just from the pandemic period of 2020 but also from the pre-pandemic period before 2020. Although many companies are announcing job cuts, especially in technology (Amazon) and banking (Goldman), these industries also hired many employees during and after the pandemic, giving them reasonable amounts of job cuts to make without impacting the overall employment picture. The combination of elevated job openings and low unemployment dims the prospects for a hard landing (aka recession) in 2023.

Policy and Politics

Republican Representative Kevin McCarthy was elected Speaker of the House in a near-record set of 15 elections before the conclusion on January 7, 2023. The election was less critical than the November 2022 election. At that point, the Republicans took control of the US House of Representatives and thereby set a firmly divided government in place for at least two years. Historically, markets like a divided government for the sole reason that nothing drastic can happen that would impact the business environment. It is too early to see which direction our divided government will take, but we take solace in the fact that there are strong checks and balances.

What to Watch

  • U.S. Inflation Rate for December 2022, released 1/12/23, (Prior 7.11%)
  • U.S. Core Consumer Price Index Year Over Year for December 2023, released 1/12/23, (Prior 5.96%)
  • U.S. Index of Consumer Sentiment for January 2023, released 1/13/23, (Prior 59.7)

Markets are off to a good start thus far in 2023. Still, a week does not make a year, and uncertainty remains with the Fed, China’s reopening, the Russia/Ukraine War, ongoing painful inflation, and the long-running inverted yield curve in the U.S. Treasury market has historically preceded a recession. In the face of this uncertainty, we have conflicting employment information that shows layoffs by many companies while job openings remain high and unemployment remains low. Inflation continues to be the Fed’s primary concern, and we expect further rate hikes in 2023. We also expect the pace, tenor, and size of those rate hikes to soften as Chairman Powell balances higher rates with inflation and prospects for a recession. Lastly, wage growth, while moderate recently, is keeping consumers healthy. When you add in bank balance sheet health and corporate earnings growing modestly, it is difficult to see a recession in 2023 and much easier to see the hoped-for “Soft Landing.”

Current Market Observations

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Mixed inflation data released last week put a new tenor of concern into the markets as investors worried that the latest data challenged the current consensus that the Federal Reserve Bank would be slowing its pace of interest rate increases. All major market indexes posted negative returns for the week, with the tech-heavy NASDAQ selling off -3.99% while the Dow Jones Industrial Average fell by only -2.77%. Additional U.S. inflation data is due this week, and a Fed policy decision will follow on Wednesday when the central bank is expected to raise interest rates by +0.50% percentage points.  

Global Economy 

As mentioned above, last week’s inflation data weighed heavily on the market, sending a mixed message to investors. Chart 1 below from Valley National Financial Advisors and Y Charts shows monthly U.S. PPI, U.S. Core PPI, and yearly U.S. PPI and U.S. Core PPI. Year-over-year data shows that inflation is falling, having peaked in July of 2022. However, monthly data – in this case from October to November 2022 – still showed a modest uptick. This mixed message puzzles investors because it does not give the Fed a true green light to halt further interest rate hikes. Additional information is due this week that will show U.S. Consumer Price Index and U.S. Core Consumer Price Index data, as well as the U.S. Inflation rate for November 2022.  

The U.S. Federal Reserve Bank wraps up this week’s meeting on Wednesday, and the bank is widely expected to raise interest rates an additional +0.50%, marking the seventh-rate hike for 2022. Fed Chairman Powell will hold a press conference after the meeting announcement, and investors will watch for any signs that point to the crucial “Fed Pivot” or change in the interest rate path. We believe there will be a reasonable period (six to 12 months) before the Fed changes its interest rate path from hiking to cutting rates. The U.S. Inflation rate is still running well above their “target” rate of +2.50% (~7.75% in October 2022), and there needs to be time for the rate hikes we saw in 2022 to percolate through the economy and thereby slow the inflation rate.

What to Watch 

Indeed, inflation is coming down, as we have seen in prices for crude oil and retail gasoline. But the Fed still has work to do – we know this, and it is common knowledge on the street. However, uncertainty about a pivot continues to weigh on the markets and investors. The consumer continues to show resilience, especially regarding spending. (Watch for retail sales data being released this week.) The labor market also remains healthy, with the unemployment rate below 4.00%. We are ending this week’s observations on a positive note. Last week, Bloomberg released a survey of Fund Managers’ predictions for 2023 (Chart 2) and showed an optimistic outlook for markets. We may see some softening in corporate profits or even a modest recession, but watch for 2023 to offer positive returns for stocks.  

Current Market Observations   

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Financial markets got a triple dose of good news immediately before the Veteran’s Day holiday weekend. On Thursday, the U.S. Inflation report for October 2022 showed a drop in the rate to 7.75% from 8.20% the prior month (See Chart 1). Further, a reasonable cessation in the Russia/Ukraine war seems imminent as Russia retreated from the Kherson region of Ukraine. Lastly, China announced a sweeping overhaul to its “zero-tolerance” practice regarding COVID-19 rules allowing the country to truly reopen its economy. Equity markets rallied (higher prices) sharply on the news, especially the NASDAQ (+8.10% on the week) which reacted favorably to lower interest rates (10-Year U.S. Treasury dropped 40 basis points to 3.82%) which help growth and technology companies as borrowing rates decrease. It would not be prudent of us to ignore another big story last week as Cryptocurrency trading giant FTX collapsed wiping out a $32 billion company overnight.  

US Economy 

Chart 1 below from Valley National Financial Advisors and Y Charts shows the U.S. monthly inflation rate. The sharp drop in the rate is the first tangible evidence that the Federal Reserve Bank’s tight monetary policy is finally curbing inflationary pressures. 

The move in the inflation data immediately impacted financial markets. The CME Group (Chicago Mercantile Exchange) Fed Watch Tool (Chart 2 below) now shows an 80% probability of “only” a +50 basis point rate hike at the December Federal Open Markets Committee meeting rather than a +75 basis point hike, which had been priced into the markets prior the lates inflation report. Chart 2shows the probabilities of changes to the Fed rate and U.S. monetary policy, as implied by 30-day Fed Funds futures trading data.This is a meaningful change in the futures markets as it shows that the end of the Fed’s current interest rate hiking cycle is nearing an end. The question remains around whether Chairman Powell can deliver the mythical “soft-landing” (slowing the economy to combat inflation but not slowing it so much that the economy falls into a recession). 

Policy and Politics 

The midterm election has concluded, and the results give us a weakly divided government with the Democrats maintaining control of the Senate and the Republicans gaining control of the House. As we have stated many times, financial markets appreciate a divided government because it ties the hands of any one party and prevents “unknown” events from impacting the markets. Overall, gridlock works – oddly, but truthfully. 

President Biden is meeting with Chinese leader Xi Jinping today, marking the first time the two leaders have met since Joe Biden took office. While more of a political show, the event does mark a time when relations between the U.S. and China are at a relative low point due to tensions between China and Taiwan. Any warming between the two countries will be viewed as a net positive for global markets. 

What to Watch 

As mentioned above, FTX, previously one of the world’s largest cryptocurrency exchange platforms, collapsed into bankruptcy wiping out a $32 billion company overnight. When we have discussed cryptocurrencies and we have always told investors to understand and research what you are buying. FTX is only one company in the swiftly growing world of cryptocurrencies but the old Wall Street adage “there’s never just one cockroach” rings true right now and we implore our readers to continue to exercise caution in this market. One thing for sure is that regulators and law makers will take a much greater interest in the crypto market.

RELATED VIDEO: CIO Bill Henderson on Cryptocurrency

Last week we saw some great news around the Fed, Russia/Ukraine War and China. Softening inflation data gives the Fed some room to slow down its interest rate hiking cycle, which growth stocks (NASDAQ) view favorably. We are cautiously optimistic that we have seen the peak in inflation. Remain vigilant nonetheless and watch events unfold around the cryptocurrency markets, the Russia/Ukraine war and whether President Biden and Xi Jinping announce any actual results of their meeting. 

Update – Washington

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The U.S. stock market has jumped since the November 8th election. We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration.  What will happen next? It’s still to be determined!

The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy. I consider the success or failure of the 4 initiatives to be “leading” indicators for the Heat Map.

Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:

  1. Tax cuts and tax reforms benefiting most individuals and businesses. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%

  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%

  3. Affordable Care Act amendment, reform or reorganization. ON ITS SECOND ATTEMPT, THE HOUSE OF REPRESENTATIVES PASSED LEGISLATION TO REVISE IT. CUMULATIVE PROGRESS TOWARD THIS GOAL IS 20%.

  4. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 40%

As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.

We will continue to report in future issues on the progress on each initiative. 

Update – Washington

Posted on by

The U.S. stock market has jumped since the November 8th election. We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration. What will happen next? To Be Determined!

The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy. We consider the success or failure of the 4 initiatives to be “leading” indicators for the Heat Map.

Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:

  1. Tax cuts and tax reforms benefiting most individuals and businesses- NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
  3. Affordable Care Act amendment, reform or reorganization. ON ITS SECOND ATTEMPT, THE HOUSE OF REPRESENTATIVES PASSED LEGISLATION TO REVISE IT. CUMULATIVE PROGRESS TOWARD THIS GOAL IS 20%.
  4. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 30%

As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.

We will continue to report in future issues on the progress on each initiative.

Update – Washington

Posted on by

The U.S. stock market has jumped since the November 8th election.  We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration.  What will happen next? TBD.

The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy. We consider the success or failure of the 4 initiatives to be “leading” indicators for the “Heat Map.”

Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:

  1. Tax cuts and tax reforms benefiting most individuals and businesses- NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%

  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%

  3. Affordable Care Act amendment, reform or reorganization. THE HOUSE OF REPRESENTATIVES FAILED TO PASS LEGISLATION TO REVISE IT. NO TIMETABLE HAS BEEN PRESENTED TO RE-INTRODUCE THIS LEGISLATION SO THE CUMULATIVE PROGRESS TOWARD THIS GOAL IS 0%.

  4. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 20%

As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.

We will continue to report in future issues on the progress on each initiative. 

Update – Washington

Posted on by

The U.S. stock market has jumped since the November 8th election. We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration. What will happen next? TBD.

The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy. I consider the success or failure of the 4 initiatives to be “leading” indicators for the Heat Map.

Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:

  1. Tax cuts and tax reforms benefiting most individuals and businesses- NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
  1. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
  1. Affordable Care Act amendment, reform or reorganization.THE HOUSE OF REPRESENTATIVES FAILED TO PASS LEGISLATION TO REVISE IT. NO TIMETABLE HAS BEEN PRESENTED TO RE-INTRODUCE THIS LEGISLATION SO THE CUMULATIVE PROGRESS TOWARD THIS GOAL IS 0%.
  1. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 20%

As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.

We will continue to report in future issues on the progress on each initiative. 

Update – Washington

Posted on by

The U.S. stock market has jumped since the November 8th election. We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration.  What will happen next? TBD.

The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy. We consider the success or failure of the 4 initiatives to be “leading” indicators for the Heat Map.

Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:

  1. Tax cuts and tax reforms benefiting most individuals and businesses- NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
  1. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. NO PROGRESS RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 0%
  1. Affordable Care Act amendment, reform or reorganization. THE HOUSE OF REPRESENTATIVES FAILED TO PASS LEGISLATION TO REVISE IT. NO TIMETABLE HAS BEEN PRESENTED TO RE-INTRODUCE THIS LEGISLATION SO THE CUMULATIVE PROGRESS TOWARD THIS GOAL IS 0%.
  1. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 20%

As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.

We will continue to report in future issues on the progress on each initiative.

Update – Washington

Posted on by

The U.S. stock market has jumped since the November 8th election.  We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration.  What will happen next? TBD

The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy.  I consider the success or failure of the 4 initiatives to be “leading” indicators for the Heat Map.

Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:

  1. Tax cuts and tax reforms benefiting most individuals and businesses- NO PROGRESS RECENTLY.  CUMULATIVE PROGRESS TOWARD GOAL: 0%

  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years.  NO PROGRESS RECENTLY.  CUMULATIVE PROGRESS TOWARD GOAL: 0%

  3. Affordable Care Act amendment, reform or reorganization. THE HOUSE OF REPRESENTATIVES FAILED TO PASS LEGISLATION TO REVISE IT. NO TIMETABLE HAS BEEN PRESENTED TO RE-INTRODUCE THIS LEGISLATION SO THE CUMULATIVE PROGRESS TOWARD THIS GOAL IS REDUCED FROM 15% TO 0%.

  4. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED AND ALL BUT A FEW TRUMP NOMINEES HAVE BEEN SUCCESSFULLY CONFIRMED BY THE SENATE.  CUMULATIVE PROGRESS TOWARD GOAL: 20%

As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.

We will continue to report in future issues on the progress on each initiative.