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Market Recap – February 27, 2023

Keel Point

February 27, 2023

Stronger than expected inflation and spending data have pushed up U.S. interest rates and interest rate expectations with negative impact on equity markets and a stronger U.S. dollar.

  • The unexpectedly strong increase in core PCE inflation in January – up 4.7% vs 4.6% in December – means the Fed may be leaving the fed funds rate higher for longer.
  • U.S. equity markets sold off during the last week, with the S&P 500 down 2.7% leaving it up 3.4% for the year to date.
  • The bright spot in the inflation numbers is that 2nd half of the year should see sharp falls in shelter inflation – the largest single segment in the CPI — as the already observed fall in rents finally make it into the CPI data.
  • Also, higher market interest rates and a sell-off in U.S. equity markets likely will relieve the Fed of beginning a more aggressive move in interest rates.
  • Financial markets currently are expecting three more ¼% increases ending with the fed funds rate at 5.3%, with little chance of rate cuts later in the year.
  • The new income and spending data out this past week indicate that 2023 first quarter U.S. real GDP growth will be close to 1.5%.

In China, which is likely an important growth engine for the global economy, the turnaround in China government policies is already generating improved government liquidity provisions.

  • China’s central bank has promised to implement a “targeted and forceful” monetary policy to support domestic demand.
  • Home sales in Beijing are running at nearly double the rate of late 2022.
  • China’s new earnings season is showing strong results from the leading tech companies.

 

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment advisory Services are offered under the Keel Point brand. Investment Advisory services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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