My view of the current investment tug-of-war is that the future interest rate outlook is becoming more of a known. The recession fear of how deep, and for how long, is getting less cloudy.
Federal Reserve Chairman Jerome Powell fell into my line of thinking when on February 1, 2023, the Fed increased interest rates by ¼% versus the before indicated ½%. In his press conference Powell went on to suggest that “maybe” a few more rate hikes were in order, implying at ¼% each.
Markets liked this news and rallied for a few days. And when the new jobs created report came out the party slowed!
Jobs creation and wages paid are clearly followed by the Fed in their mandate to box inflation at 2% versus the current 4%+! However, there was a huge 517,000 jobs created in January, a month that normally contracts as seasonal workers are relieved their duties, i.e., inflationary.
In the November 2022 Seven Signs of a Changing Economy™ monthly update I suggested you do a search for “Nick Timiraos”. Nick is a reporter at the Wall Street Journal and among other areas Nick follows and reports on are all things Fed. Nick’s accuracy is so accurate as to think he is the Fed’s messenger.
So, as I would have suggested, right after the Jobs Creation (inflationary) report on 2/3/2023, Nick reported.
“If the economy continues to add more than 200,000 jobs per month without a large increase in the labor supply, whatever labor market tightness you have now would look worse in six months.”
In other words, if Powell acted and spoke after the jobs report versus the two days before we would likely have gotten a +1/2% rate increase versus the +1/4% and “tough talk” versus the “we are close” to the end talk. Markets could have easily dipped 1,000 points on that alone.
So, the tug-of-war continues!
We remain on purpose, thoughtful and intentional with our investment re-entry strategy.
I’m interested in your thoughts, comments, and observations. Feel welcome to call, email or stop by the office and say Hi.
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.