GOOD NEWS! Or Is It?
Also, Your Future Best Friend May Be An MGAM Blend!
Weekly Market Outlook
By Keith Schneider and Donn Goodman
Hello Gaugers. We hope you are prospering from the positive move in the markets recently, and staying warm if you are in a cold (frigid) area of the country. Bundle up. And with the markets, buckle up. We assure you that it won’t be straight up from here.
It was a good week with most of the economic news and certainly with the markets.
Will it continue?
We are not prognosticators, but as we pointed out in last week’s Market Outlook, there are plenty of Pros and Cons.
As they often say on Wall Street, good news may be bad news. A few situations occurred this past week that may eventually lead to unexpected and unfavorable future actions.
Let’s explore these together:
The Federal Reserve
It was Fed week. As expected, the FOMC (Federal Open Market Committee) pulled the trigger on yet another overnight lending hike of 25 basis points (0.25%), the smallest such hike in a year. As you recall, the last 4 hikes were all 75 basis points. This was largely expected.
This brings the rate up to 4.50% to 4.75%. Their published statement started off hawkish with the persistence of inflation and the need to get rates to the target of 5.25%, as outlined in previous Fed meetings. That equates to another 2 – 25 bp rate hikes in the next few months.
The stock market’s initial reaction was negative.
Then the post announcement press conference by the Chairman began. His answers to probing and piercing questions about the slowing economy immediately softened his hawkishness. Words such as “we see a deceleration of inflation” was enough to send the stock market into an explosive move higher.
Our opinion: The Fed means business. We have often commented in these weekly Outlooks that inflation is a punishing and insidious tax on Americans. Inflation has led to a huge increase in jobs, but not in the way that you think. (see next section).
Since I was a young student taking economics classes in college, I learned that “you don’t fight the Fed.” We are in a non-accommodative monetary policy period. Also, investors NEED to remember that the Fed is reducing its multi-trillion bond portfolio. We look for rates to stay elevated for higher and for longer.
We do not believe the Fed will pivot anytime soon.
Our own Director of Research and Market Analyst Mish Schneider often comments during her National TV appearances that when inflation gets as elevated as we have experienced the past few years, it usually takes years to bring it down. We most likely will not see the 2.0% Fed target for some time. Therefore, the Fed’s restrictive monetary policy will continue. It will adversely affect consumers and should continue to put pressure on earnings and the multiples that are used to price stocks.
Good News? An Unprecedented January Jobs Report, but Is It Real?
Let’s look closer under the hood.
Click here to read more info about the Jobs Report, the January stock market effect (the Trifecta) and signs to watch out for. Additionally, we are providing information on the MarketGauge Asset Management Blends.