Although the markets are closed on Monday (1/16/23) in observance of Martin Luther King Day, it is entering into a new dynamic. The inflation rate continues to be of primary concern for the Federal Reserve (currently sitting at 6.5 %) this still remains above the stated goal of the Fed of 2 %. We have now seen the inflation rate decrease 6 months in a row. This past Wednesday saw the Fed increase rates again by another ½ %.
The Consumer Price Index (CPI) when not including energy services has increased 0.6 % in December. The CPI number for November clocked in with an increase of 0.4 %. Looking further at the December number however, we notice that compared to December 2021 this number is up 7 % - the highest rate since August 1982! Put another way, the typical American household is now spending $371.00 more per month for goods and services than they did in December 2021.
Despite Wall Streets enthusiasm over the possibility that the Fed will begin to slow down rate hikes this year due to the decreasing inflation rate (currently 4.25 – 4.50 %) this is still the highest level in 15 years. Some Federal Reserve officials are now voicing their opinion that rates will NOT be cut this year at all! This is opposite of what the Fed was signaling just a few short weeks ago. Jamie Dimon, CEO at JP Morgan has observed that rates may go beyond what the market is currently expecting (that belief being a final rate of 5%) – and will move north as it does.
What is beginning to become noticeable is the strength in the industrial sector of the economy. S&P 500 industrial stocks such as Caterpillar and Freeport McMoRan have been outperforming the market since the 3rd quarter. Material and industrial stocks to watch this year include BMP Group, Deere, Rio Tinto, Terex and United Rentals as well a the two listed above. It just may be that we are entering an industrial economy of real strength in the years ahead.
Friday (1/13/23) saw the Dow close at 34,302 up 2 % for the week. The S&P 500 at 3,999 up 2.7 % and the Nasdaq posting an increase of 4.8 %. This coming week many of the big name companies will be issuing their earning reports. Among these names are Goldman Sachs, Alcoa, United Airlines and PPG Industries. In order to see a true break-out pattern, we will need to see the S&P 500 close at 4,100. What we have taken note of is the bullish pattern that the S&P 500 is now showing us. Moving day averages are very important averages and when we look at Friday’s close we notice that the S&P 500 closed above it’s 50 day moving average but more importantly, it closed above it’s 200 day moving average as well.
As if to add mystery to the mix, the United States government is currently embroiled in a political game of chicken. The national debt, which currently stands at $31.5 Trillion dollars, is days away from bankruptcy! An increase in the debt ceiling must, it appears, be made thereby increasing that debt even more. If history teaches us anything we could go back 12 years to the year 2011 and observe the effect that near-insolvency had on the US economy and stock market. Between July and November of that year, the S&P 500 slid down 6 %. Although the country avoided default, the US Treasury found that the delays in raising the limit had a severe impact on the economy that took months to recover from. It is still too early to call this potential hot potato so we will defer any opinion until we have more information and updates in the coming days.
When offering our market analysis, we follow our strategies, and our indicators are now forming a trading-trend. Although we are still in a Bear Market, we are moving into uncharted waters with the numbers we are seeing. We are still of the opinion that a Panic Bottom needs to come about. This will happen when the S&P 500 reaches the vicinity of 3,300 give or take. That being said, we will, as state above, take advantage of what is being offered currently in the market.
We are now Bullish (issuing a ‘buy’ signal) on the following segments of the market:
Small Cap Funds
S&P 500 – Large Cap Funds
Nasdaq 100 Index Funds
International Growth Funds
You must use common sense in deciding if any of the above are right for you. To determine this, please consider your goals and risk tolerance. The benefit of subscribing to GaneWisdom/ Market Edge is that you can manage your own money as you feel comfortable while using our analysis as an informed opinion. Also please bear in mind that these are not ‘open’ positions meaning that they are to be utilized – if at all – in a timely manner after our update. To buy at a later date could put you at a severe disadvantage as you may be buying when it no longer is favorable to do so.
As always, if any changes are in order, we will issue midweek updates as warranted.