December 14, 2022 | Daily JAM |
Today I posted my two-hundred-and-seventeenth YouTube video: Where Do We Go From Here?
Today’s topic: Where Do We Go From Here? We got better-than-expected CPI inflation numbers yesterday. Economists were expecting a 7.3% headline annual rate and we got 7.1%. For the core rate, expectations were at 6.1% and we got 6.0%. In the hour following the CPI report, the S&P 500 jumped about 1.6%. If the Fed announces the expected 50 basis point rate hike and doesn’t shock the market with unexpected bad news, we’ll likely see a traditional Santa Claus rally. The question of the Fed’s Dot Plot projections remains my long-term concern–as we try to understand how long the Fed will continue to raise rates and when we are likely to hit the Fed’s goal of a 2% inflation rate. We’re currently at about 7% and I expect getting down to 5% or so will be pretty painless. Beyond that, How we go from 4-5% to 2%? could be the crucial question for 2023. Until that 2% is in view for the Fed, I don’t think the central bank will back off completely. We’ll see if this Santa Claus rally can stay convincingly above 4,000 in the S&P 500. If we do move above that level, I think we can expect the rally to continue until about February or maybe even early March. And then we’re likely to see a drop in stocks because of a lower growth rate for corporate earnings and continued inflation fighting from the Fed.
December 13, 2022 | Daily JAM, Morning Briefing |
Today the Bureau of Labor Statistics reported that headline CPI inflation in November climbed at a 7.1% annual rate. Month-to-month inflation rose by just 0.1% from October. Core inflation, that is inflation without energy or food prices, rose at a 6.0% annual rate with a 0.2% increase in November from October. Both the headline and core inflation numbers were better than economists had projected before this morning’s data release. Economists surveyed by Bloomberg had projected that headline Cpi inflation would climb by a 7.3% annual rate and 0.3% month over month. Core inflation was projected to move higher by 0.3%. The news certainly shows inflation on the decline. And that was good news for stocks ahead of tomorrow’s meeting of the Federal Reserve’s interest rate-setting body the Open Market Committee.
December 12, 2022 | Daily JAM, Morning Briefing |
Tomorrow, Tuesday, December 13, the Bureau of Labor Statistics will report November CPI inflation. Economists surveyed by Bloomberg estimate headline CPI to increase by 0.3% for the second consecutive month, with year-over-year CPI falling from 7.7% to 7.3%. Core CPI inflation, which excludes food and energy prices, is projected to climb at a 0.3% monthly rate or 6.1% year over year. (I would note that economists have underestimated the inflation rate in five of the last seven months.) Yes, inflation is slowing and it looks like we have seen a peak in the inflation rate. But, and it’s a big BUT, inflation is falling at a very slow rate.
December 7, 2022 | Daily JAM, Videos |
Today I posted my two-hundred-and-fourteenth YouTube video: Waiting for the Fed. We are about a week out from the Fed’s December 14 meeting, where another 50 basis point increase is expected. We’re now in the Fed’s quiet period, but last week Fed presidents were adamantly setting expectations for 50 basis points. A 50 basis point increase would be a step down from the previous 75 basis points, and many would see that as a sign that the Fed is tapering. However, the main thing to look at on December 14 is the Dot Plot of projections from the Fed itself. That will tell investors and traders how much longer the Fed now expects these raises to continue, and how where the peak might be in rates for this cycle. Wall Street is currently predicting a peak 5% benchmark rate. (We’re currently at 3.75-4%.) But I think the top is likely closer to 6%. If the Fed settles into a projection of 5%, the market will likely relax and head into an end-of-year rally that might end in the beginning to mid-January. If the Fed gives any impression that it’s looking looks at something closer to 5.5 to 6%, that would be enough to scare the market and lead Wall Street to lower projections of market gains for 2023. Right now the S&P 500 continues to teeter on the edge of resistance near the 4,000 ceiling set by previous highs of 4110 in September and 4080 at the end of November. If the Fed doesn’t come out with jarring news on the 14th, I think we can look for the index to break through 4000 until it heads back down in January 2023.
December 1, 2022 | Daily JAM, Morning Briefing |
Inflation progress in October but painfully slow. PCE–personal consumption expenditure–in inflation, the Federal Reserve’s preferred inflation index, rose at a 6% rate year over year rate through October. That was down from a 6.3% rate in September. The core PCE index, which strips out food and energy costs, rose at a 5% rate, roughly where it’s been for most of 2022.
November 30, 2022 | Daily JAM, Morning Briefing |
In a speech today Federal Reserve Chair Jerome Powell clearly confirmed what other Fed officials have said this week: 1. The Fed will raise interest rates at its December 14 meeting by 50 basis points and not 75. That would follow on four straight 75 basis point interest rate increases. 2. The Fed will moderate the pace of its interest rate increases going forward. 3. The peak for the Fed’s benchmark interest rate will be “somewhat higher” than estimated in September. The Fed’s estimate in September was for a peak of 4.6% in 2023. The current benchmark rate is 3.75% to 4.00%. The Fed Funds futures market sees rates peaking at about 5% in the second quarter of 2023. What he didn’t clarify is what that peak rate might be or when the financial markets might see it.
November 30, 2022 | Daily JAM, Videos |
Today I posted my two-hundred-and-eleventh YouTube video: The Fed Is Now On Message–Ask Why Today’s topic: The Fed is Now On Message, Ask Why. Last week I spoke about how confusing the Fed’s messaging had been recently, but this week, everybody has been on the same page. St. Louis Fed President, James Bullard, a fairly aggressive inflation fighter, suggested we need to take the Fed rate up to 5-7%, a hike from the current 3.75-4%. Loretta Mester, President of the Fed in Cleveland, agreed that the Fed isn’t near a pivot and John Williams, President of the New York Fed, came out with a detailed statement saying that more work is needed on inflation and unemployment may need to rise to 4.5-5% by the end of 2023. While Williams didn’t use the word, “recession,” it’s clear that you don’t reach those unemployment numbers without hitting a recession. So, why are these formerly out-of-sync Fed presidents suddenly aligned on message? The Fed is data-driven, and Fed members got new inflation and jobs numbers recently before the public release Thursday and Friday. Could be that these new data points have driven the Fed to the conclusion that we shouldn’t expect a pivot any time soon. Or maybe it’s just that the Fed goes into its quiet period soon before the December 14 meeting.
November 28, 2022 | Daily JAM |
Economists surveyed by FactSet forecast that the November jobs report, set for release Friday morning, will show that the economy added 220,000 new jobs in the month. And that the unemployment rate ticked higher to 3.8% from 3.7% in October If that forecast is correct, it would, probably, be enough to keep Wall Street convinced that the Federal Reserve will raise interest rates by only 50 basis points at its December 14 meeting and that the U.S. central bank is on track to wind down this cycle of interest rate increases in early 2023.
November 28, 2022 | Daily JAM, Videos |
Today I posted my two-hundred-and-ninth YouTube video: Is the Fed Confusing or Just Confused? Today’s topic: Is The Fed Confusing, or Just Confused? First, Mary Daly, president of the San Francisco Fed came out with a very mixed message about the Fed’s December 14 meeting. The market seems to have decided that the Fed will raise rates by just 50 basis points, she said, but that it’s still too early to decide and a 75 basis-points increase is still on the table. But, she then added, the Fed is worried about overcorrecting and causing a recession. Then, Loretta Mester, president of the Cleveland Fed, announced that she is open to slowing the rate of the rate hikes, but was unclear on what “slowing” would actually mean. I think the key to market direction after the December meeting is the Dot Plot Summary of Economic Projections. The last time the Fed released a Dot Plot was September and it’s already wildly out of date. The September projected inflation rate for 2023 was 2.6-3.5% and 5.3-5.7% for 2022. Both projections will likely be revised higher in December. Inflation isn’t coming down as fast as the Fed thought in September, but it is coming down. Big question for the financial markets, though: Is it coming down enough? Rate hikes of 50 or 75 basis points are on the table but does the Fed now think it can stop raising the rates? My conclusion is that the Fed sounds confusing because the Fed is actually confused.
November 17, 2022 | Daily JAM, Morning Briefing |
The hits keep coming. Today, November 17, St. Louis Fed president James Bullard took the lead. Bullard called for raising rates to at least 5.00%-5.25%, which he called the “minimum level” to be “sufficiently restrictive.” During Bullard’s presentation, he showed charts indicating rates will need to be 5.00%-7.00% to curb inflation.
November 16, 2022 | Daily JAM |
Is the Federal Reserve now in the business of talking down stock prices? It sure looked like it today.
November 11, 2022 | Daily JAM, Morning Briefing |
After Thursday’s CPI inflation report, stocks have a clear path to move higher in a strong rally through the end of the year. Critically, the October inflation report, which showed inflation falling slightly more than expected, gives Wall Street the data it needs to sustain its favorite rally story: Inflation has peaked and is heading down. Which means the Federal Reserve will soon pause its policy of increasing interest rates early in 2023 and pivot to cutting interest rates by the middle of the year. You could see that story at work in the huge jump in Treasury prices and the huge drop in yields. The yield on the 10-year Treasury fell 23 basis points to just 3.86% on Thursday That’s a huge move–and deeply significant–considering that the yield on the 10-yer bond was above 4%, at 4.21% on Monday, November 7.
