The happy memories we recently enjoyed with one another over the holidays have been swiftly replaced by anxiety and angst once more. I had the good fortune to get back on the road this week to see clients but that didn’t slow down the activity on my cell phone or email inbox. The recent spate of headlines is generating lots of fresh questions in addition to the customary year-end and forward looking planning. I'll try my best to keep it straightforward and succinct as I plow through it all. The three main factors that influenced the markets this week, in my perspective, were corporate earnings, concerns about the debt ceiling, and anxiety about the Federal Reserve’s activities. Let's dig in.
Over the course of the week, several Federal Reserve officials spoke with a consistent and recurring theme. They will continue on their current trajectory to reduce inflation by all means necessary. This fueled the fears of many of Wall Streets "big hitters," who are concerned that the Fed will act excessively and push us into a more extended recession rather than the moderate or shallow version that many have been preparing for. The Fed pushing the boundaries too far would not be unusual in this case. History has plenty to show us on that front. We did see another inflation measure show a lower data point over the week (wholesale prices), but it doesn't appear to be enough to cause the Fed to change course just yet. I firmly believe that this was the key headline that contributed to the decline in our markets over the week. A few things to keep in perspective. On October 13th, 2022, the S&P 500 experienced a 52-week low of 3,491. As of January 18th, 2023, the S&P 500 closed at 3,928 or up +12.5% since then. Remember that this is just one benchmark among several that are used to assess the overall market's health and diversification, but it is nevertheless encouraging. These types of weeks are to be expected as we have experienced a relatively strong start to the year.
The debt ceiling warnings and mixed corporate earnings added to the overall market’s mood. Earnings reports so far have been a general mixed-bag, some below and some above guidance. I actually think this is ok given the current environment we are in. We have always said that times like this will separate the performers from the non-performers. The forward-looking guidance has been and will continue to be an important statistic to monitor. How we proceed over the coming months will depend in large part on any discernible evidence of a slowdown in consumer spending. The final big talking point was the ongoing debt ceiling discussions. In my opinion, there is more risk to the political players engaged in making the headlines than it is to the markets themselves. Giving this current cast of characters another platform from which to speak only makes it worse. I think we can all agree that we just want them to act like the grownups in the room and get out of the way. There is no doubt that things will get resolved; let's just hope that it doesn't result in another shutdown like the one we experienced a few years back. I've provided a link to an article from Investopedia written back in 2021 that outlines how markets function during shutdowns. Simply put, these events had very little impact on the markets. The phrase "unprecedented times" has been used frequently during the past few years, so anything is possible, but not likely. Like our prior experiences, I believe this will be a non-event.
A lot to sort through, but not insurmountable! Enjoy the weekend ahead.
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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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.