The December CPI (Consumer Price Index) numbers released on Thursday morning, came right in line with the expectations from economists. Over the week, leading up to the release, the markets moved in a nice upward trend. Clearly, the expectations of an improved number (lower inflation reading) was expected. There was some hope that the recent data would show even more of a decrease, but that was not the case. Either way, the June 2022 high-water mark remains in place, and we continue to see a gradual decline from those elevated levels. A steep drop in gasoline was responsible for most of the decline in the month over month reading followed but used car prices dropping. Food prices are still on the rise slightly, so that will be something we keep an eye on. Another major component of the CPI index is housing and rent. Rents, in general remain on the rise, but there are indications of price increases slowing on a year over year bases. That will be an important metric to watch as well in the months ahead.
While we may not directly see a drop in prices overall, other than what we are paying at the pump, the numbers are indicating a gradual slowdown. This is exactly what the Federal Reserve needs to see in order to keep slowing down the pace of interest rate increases. The next Fed meeting is still a few weeks away, but the betting odds have moved to an expected increase of a more moderate .25% at the conclusion of that meeting. There has been a stated goal by the Federal Reserve of not only getting inflation back in line, but also seeing higher unemployment numbers. It remains to be seen if the later objective can be met without really causing a significant decline in the stability of our economy. We often hear concerns about the Fed overreacting and pushing the envelope too far. I don’t believe anyone wants to see a full-blown recession take place, but I do think a mild version is in the cards. It almost seems inevitable at this point. Keep in mind that our financial markets tend to read into this well ahead of time and the possibility remains that we have seen the worst of it all. The proverbial “playbook” is going as expected for now, but much work is still to be completed. As always, the post Fed meeting talking points will be closely regarded.
Corporate earnings are now front and center. As of this morning, several of the large financial institutions like J.P. Morgan, Wells Fargo, and Bank of America, have all reported 4 quarter earnings. It was generally a mixed bag, as the big banks navigate through the economic headwinds and interest rate increases. We will be watching to see how earnings, in general, stack up versus the expectations set by Wall Street analysts. We know job cuts have been taking place across the hard-hit technology sector as large corporations manage their balance sheets and expense items. Capital expenditures will remain lower for some time but those companies with solid cash flow are likely to navigate through the coming year better than others. Owning and investing in high quality companies with proven track records is important during times like this. An added bonus in the face of higher interest rates is the ability to invest in fixed income instruments, treasuries, and even money-markets that are seeing yields higher than they have been in years. How things have changed over the course of a year!
While I always enjoy the holiday season and the excitement that brings, I am ready to get back to a routine and schedule. As much as we might complain about it, we are truly creatures of habit. There is something to be said for a consistent routine and regiment. One of my sons has been reading the book “Make Your Bed”, by general William McRaven. It discusses many of life’s simple things, that when built upon, can lead to a path of consistency, happiness, and ultimately, success. Our own personal measures of success vary. Buying a home, preparing for college expenses, and retiring are all examples. Through careful planning and preparation, we can achieve these goals. We are in a constant state of learning as 2022 has proven. Our goal, as your trusted advisors, is to remain consistent in our strategies, stay connected with you, and pivot as life throws us a curveball. The TV timeout is over and I’m ready to get back to the action.
https://www.cnbc.com/2023/01/13/jpmorgan-chase-jpm-earnings-4q-2022.html
https://www.youtube.com/watch?v=5YNmNd2ncw0
Christopher E. Wasson, CFP®
President
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
MosaicAssetPartners.com
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.