Stocks rallied last week thanks to fresh confirmation of inflation’s cooling trend and growing optimism that an inflation slowdown may provide the Fed with space to ease up on future rate hikes.
The Standard & Poor’s 500 advanced 2.67%, while the Dow Jones Industrial Average gained 2.00%. The Nasdaq Composite index surged 4.82% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, jumped 3.32%.1,2,3
Investor sentiment came into the new year weighed down by recession fears and concerns that Fed rate hikes may “go higher for longer.” Last week a different narrative emerged. Sustained declines in inflation, a rate hike cycle nearing an end, and a resilient economy that may avoid recession resulted in a broad-based rally.
Moderating inflation was evident in the Consumer Price Index (CPI) report released on Thursday, which, in combination with a strong labor report the previous Friday, gave investors confidence that the environment for stocks had improved. Stocks extended their gains to end the week as a few money center banks kicked off a new earnings season with upbeat reports.
What's Next for Inflation? A Cooling Trend.
December’s CPI report showed a 0.1% declinein prices from November driven by a 16.6% drop in volatile fuel oil prices and a 9.4% drop in gasoline. Used car prices (-2.5%) were another bright spot.4
It was the sixth-consecutive month of decelerating year-over-year increases (which seems to be the only thing most of the media looks at.) Core prices (excludes food and energy) were up 0.3% in December, with the highest component, shelter, up 0.8% for the month. We should note that rent inflation lags the rest of the market because renters roll off their old leases over one or more years. The rest of the economy could be in recession and landlords will keep raising rates to reflect their higher costs and higher property values.
The 12-moth core rate slowed to 5.7%, a decline from the previous month’s 6.0% year-over-year rise. For the last three months, core prices have risen at an annualized rate of 3.1%–the slowest pace in over a year.5
As I have been saying for quite some time now, we are getting very close to the stated Fed target of 2% inflation. Personally, I would rather see 3% inflation and full employment than risk rising unemployment rates, but I'm not the one making that call.
This Week: Key Economic Data
Wednesday: Producer Price Index (PPI). Retail Sales. Industrial Production.
Thursday: Housing Starts. Jobless Claims.
Friday: Existing Home Sales.
Source: Econoday, January 13, 2023
This Week: Companies Reporting Earnings
Tuesday: The Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS), The Charles Schwab Corporation (SCHW).
Wednesday: United Airlines Holdings, Inc. (UAL), The PNC Financial Services Group, Inc. (PNC), Prologis, Inc. (PLD).
Thursday: Netflix, Inc. (NFLX), The Procter & Gamble Company (PG).
Friday: Schlumberger Limited (SLB), PPG Industries, Inc. (PPG).
Source: Zacks, January 13, 2023
"I didn’t know that I was different and now I realize how very different I was. But difference is what makes the world beautiful."
– Venus Williams
Tax Benefits for Charitable Giving
Giving back to others feels good and is a great way to support your community and those in need, but it also has tax advantages. According to the IRS, most charitable contributions are deductible as an itemized deduction when you file your taxes, including cash and property contributions.
Some contributions aren’t tax-deductible, so check the current tax law or talk to your account before deducting charitable gifts from your tax return. You can even use the Interactive Tax Assistant on the IRS website to see if your charitable contribution is deductible.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov6
Goals That Stick
Remember, your goals should be specific, measurable, actionable, realistic, and timely. Here are some to get you started:
We’d love to know: what goals are you setting this winter?
Tip adapted from Healthline7
You need to take a gallon of oil out of a barrel of oil. How can you do it using only a 3-gallon container and a 5-gallon container?
Last week’s riddle: It is a short and simple word, and something that everyone needs. Put an 'r' on the end and you have a new friend, but if the first letter goes away, you are sad. What is this word? Answer: Love.
Crooked River, Smith Rock State Park, Oregon
Footnotes and Sources
2. The Wall Street Journal, January 13, 2023
3. The Wall Street Journal, January 13, 2023
4. CNBC, January 12, 2023
5. The Wall Street Journal, January 12, 2023
6. IRS.gov, November 15, 2022
7. Healthline, December 23, 2019
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Weekly Market Insights: Inflation Cools, Stocks Warm Up
January 17, 2023