Before we dive into this week's update, I would like to reiterate the cyclical nature of our world and how the economic backdrop and financial markets do not always align or agree. That is one of the reasons we have day-to-day market volatility. The market, as represented by the S&P 500 Index in this case, has rallied from its most recent low on 10/12/2022. I welcome this rally while also keeping an eye on the potential long-term investing environment. The market seems to think that the terminal rate (the highest interest rate that the Federal Reserve will reach in their current interest rate cycle) will be around 5%. I hope that is accurate, but once inflation is embedded in wages, it becomes more structural versus cyclical. Additionally, there have been many times in our last ~50 years when consumer inflation and wage inflation have deviated from moving together or from being positively correlated. This speaks to the possibility that wage inflation can recede and consumer inflation can stay elevated or move higher. The red ovals in the chart below show where wage inflation and consumer inflation had negative correlations (one moves up and the other moves down and vice-versa). What does this mean for investors and for financial planning? We need to be prepared for shorter market cycles and policy mistakes/reversals. An example of a policy reversal might be the Federal Reserve pausing their interest rate increases later this year and then having to start them again in short order if inflation has not shown to have consistently subsided.
Stocks were mixed last week following better-than-expected corporate reports and increasing optimism over a slowdown in interest rates.
The Dow Jones Industrial Average edged lower, slipping -0.15%. The Standard & Poor’s 500 rose 1.62% while the Nasdaq Composite index led, picking up 3.31%. The MSCI EAFE index, which tracks developed overseas stock markets, increased by 1.16%.1,2,3
Strong earnings reports and encouraging inflation data lifted stocks ahead of the Federal Open Market Committee’s (FOMC) decision on Wednesday to hike interest rates by 25 basis points. Markets rallied following the announcement, relieved that the increase was in line with expectations and buoyed by post-meeting comments in which Fed Chair Jerome Powell acknowledged the disinflationary forces in place.
Fresh earnings reports fueled further gains, with positive earnings surprises from several big-name technology companies that benefited the larger universe of Nasdaq-listed high-growth companies. Disappointing earnings from three mega-cap tech companies and a strong employment report triggered a Friday pull-back, paring the week’s gains.
Another Rate Hike
The Federal Reserve raised interest rates by 0.25%, signaling to the financial markets that it would likely hike rates by another 25 basis points at its next meeting in late March. Fed officials said the slowdown in rate hikes might provide time to assess the impact of the accumulated rate hikes. The Fed retained language in its post-meeting statement that future rate hike plans were unchanged to discourage investors’ hopes of an imminent pause in the rate-hike cycle.4
In his post-meeting press conference, Fed Chair Powell reiterated the Fed’s commitment not to declare victory on inflation prematurely but acknowledged that a disinflationary trend was underway.5
This Week: Key Economic Data
Thursday: Jobless Claims.
Friday: Consumer Sentiment.
Source: Econoday, February 3, 2023
This Week: Companies Reporting Earnings
Tuesday: Fortinet, Inc. (FTNT), Chipotle Mexican Grill, Inc. (CMG).
Wednesday: CVS Health Corporation (CVS), Prudential Financial, Inc. (PRU), The Walt Disney Company (DIS).
Thursday: AbbVie, Inc. (ABBV), PayPal Holdings, Inc. (PYPL), PepsiCo, Inc. (PEP), Kellogg Company (K), Expedia Group, Inc. (EXPE), O’Reilly Automotive, Inc. (ORLY).
Source: Zacks, February 3, 2023
"A man's legacy is defined by time."
– John Cena
What is Clean Beauty?
What you put on your body is just as important as what you put in your body! This is why more people are choosing clean skincare and beauty products. Clean ingredients are better for the environment and often more gentle on your skin.
Clean beauty products don’t contain synthetic chemicals and ingredients that could harm your body or irritate your skin. Some of these synthetic ingredients include:
Tip adapted from FOREO6
What is the beginning of sorrow and the end of sickness? Something you cannot express happiness without? Something that is always in risk, but never in danger?
Last week’s riddle: Karen is twice her brother’s age and half her father’s age. In 22 years, her brother will be half the father’s age. How old is Karen now? Answer: Karen is 22 years old.
Haleakala National Park, Maui, Hawaii
Footnotes and Sources
2. The Wall Street Journal, February 3, 2023
3. The Wall Street Journal, February 3, 2023
4. The Wall Street Journal, February 1, 2023
5. CNBC, February 1, 2023
6. FOREO, November 20, 2022
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Weekly Market Insights: Powell: Inflation Heading in the Right Direction
February 07, 2023