Inflation And The Fed At Odds

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Both Equities and Fixed Income have started off the year with a bang.  Equities were higher last week and the economic data showed improvement.  The last Consumer Price Index measurement for 2022 showed a 6th consecutive month of declines last week.  In fact, the current decline in CPI on a year-over-year basis is the 3rd fastest decline from peak after 6 months since 1950.  This news sent probabilities for a 50 basis point rate hike plummeting and the probability for a 25 basis point hike to more than 93%.  While seeming to disregard the decline in inflation, the Fed continues to leave the door open for further rate hikes.  So, despite the good news on inflation, consumers still may have to deal with higher interest rates for longer.

The preliminary reading on Consumer Sentiment for January hit the highest mark in nearly 8 months.  The TED Spread, a measurement of risk in the market, had been range bound for the last 4 months and finally broke below that pattern last week, potentially signifying a decline in risk.  History shows the 3rd year of a Presidential cycle, i.e., 2023, is also good news for equities as it has provided positive returns almost 89% of the time, with the average return being +16.78%.  There are six Fed speakers this week, so all bets are off as to how the market will respond.  The Fed has been adept at speaking out of both sides of their respective mouths.  

___________________________________________________________________________________________________________

Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general. 

Past Performance does not guarantee future results.