Market Update: January 13, 2023

Welcome to the Weekly Market Update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth, and here’s what happened in the market this week.

 

It’s been a while since we’ve had an update. As a recap, in the weeks prior to the holiday season, we had established major lows back in October but were still stuck in a downward trading pattern of lower highs and lower lows. Since then, that patter may have changed a bit. The month of December was spent in a very tight and very volatile trading pattern that ended in a rally with reasonable exit velocity.

In the news this week, it appears that Europe will escape the worst of this year’s winter, lowering energy prices for the energy starved economy, and could allow them to escape a recession altogether. Tesla cut prices across its fleet. And inflation slowed for the sixth straight month, falling to 6.5%.

Here is a graph of that inflation rate, given by the Bureau of Labor Statistics, showing significant declines of the inflation rate since the middle of the summer. However, the rate is still well over the historical average and the target rate from the Federal Reserve so more progress needs to be made here.

I don’t think the Federal Reserve is paying much attention to CPI, though, and here’s why. The labor market is still unusually strong meaning there’s a ton of job openings and increasing wages throughout the economy. Now that may not sound like a bad thing but when these dynamics are out of balance with economic production within the economy, then you get 1970’s-like demand-driven inflation. Here is the number of reported job openings. While it has pulled back some, it’s still way above normal. Likewise, the unemployment rate remains very low, the lowest in 50 years. And nominal wage growth remains unusually high. If this wage growth remains unusually high without economic production keeping up, then there’s too much money chasing too little in goods and services, driving inflation higher once again. In other words, an unusually strong labor market causes demand-driven inflation which will cause further intervention from the Federal Reserve. So I would say we’re quite out of this thing yet albeit progress is definitely being made.

For more information on this topic or a variety of other topics including market updates, financial planning, and wealth management please visit our vlog at signaturewmg.com/vlog. If you like our content, feel free to share it with friends and family. And don’t forget to smash that subscribe button!

Sources:

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved January 13, 2023, from FactSet Database.

2.US Bureau of Labor Statistics. “12-month percentage change, Consumer Price Index, selected categories (past 20 years).” Updated January 12, 2023. Retrieved from https://www.bls.gov/cpi/

3.JP Morgan Asset Management. “JP Morgan Guide to the Markets.” Slides 26 & 27. Updated December 31, 2022. Retrieved from https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/

Disclosures:

Signature Wealth Management Group is registered as an investment adviser with the SEC. Signature Wealth only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. The use of words such as “will”, “may”, “could”, “should”, and “would”, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

Information is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein.

The S&P U.S. Style Indices measure the performance of U.S. equities fully or partially categorized as either growth or value stocks, as determined by Style Scores for each security. The Style series is weighted by float-adjusted market capitalization (FMC), and the Pure Style index series is weighted by Style Score subject to the rules described in Index Construction.

All information presented prior to an index’s Launch Date is hypothetical (back-tested), not actual performance. The Index returns shown do not represent the results of actual trading of investable assets/securities. S&P Dow Jones Indices LLC maintains the Index and calculates the Index levels and performance shown or discussed, but does not manage actual assets. Please refer to the methodology paper for the Index, available at www.spdji.com for more details about the index, including the manner in which it is rebalanced, the timing of such rebalancing, criteria for additions and deletions, as well as all index calculations.