Markets “In a Nutshell” for February 21, 2023
Investment Week at a Glance
Stocks finished mixed for the week. The Dow Jones Industrial Average fell 0.10%, the S&P 500 was down 0.30%, and the NASDAQ rose 0.60%. Foreign stocks (MSCI EAFE) were also up, rising 0.50%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 3.81%. (Data source: Wall Street Journal)
Consumer Strength Continues
The US consumer has continued to be resilient despite the Fed continuing to hike rates to battle inflation. Between retail sales rising in January, a huge beat in the job report, and homebuilder sentiment rebounding, the economy seems to be absorbing these rate hikes better than most expected. Many still believe we see a slowdown within the next few quarters but for the time being it seems we may avoid a deep recession as some were predicting last year. Consumer spending makes up 70% of GDP so if the consumer is able to continue to be strong, a deep recession would be very unlikely. Although a strong economy is good, it does give the Fed no reason to pause rate hikes which could hurt the market in the short term if we don’t get a pause in hikes when the market expects.
Inflation Slows But Higher Than Expectations
The CPI (consumer price index) data was released for January and came in at 6.4% which is 0.1% lower than in December. Although lower, it was 0.2% above estimates which hurt the market as that most likely guarantees more rate hikes as the Fed still wants inflation near their 2% goal. The decline in inflation will need to be steeper in the coming months or we could see the market take a downturn once again as inflation and rates continue to be the main driver for market moves. The new peak in the fed funds rate went from 4.9% to 5.3% after this most recent inflation report was released which shows how quickly data can change and how fast the market prices in such data. This is one reason investors like to stick to their plan because one report could change the whole outlook of the market.
When was the last time unemployment was at 3.4%? (Scroll Down for Answer)
Have a Great Week!
1) May, 1969. Unemployment currently sits at a 53-year low which shows just how tight of a labor market we currently have.