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Market Recap – January 30, 2023

Keel Point

January 30, 2023

U.S. GDP grew 2.9% in Q-4 2022 and core PCE inflation increased by 0.3% in December, with its three-month annualized rate falling to 2.9%.  The S&P 500 responded positively for the week and is up 6% in January through last Friday. 

  • Fed Funds interest rate increases are having the effect of slowing economic growth and inflation, and the Fed is expected to increase its Fed Funds rate again, but by only 25 basis points at the end of its meetings this Wednesday.
  • To push against easing financial markets and expectations of future rate cuts, the Fed’s statement and Chair’s press conference likely will continue their hawkish rhetoric that ongoing increases in rates will be required and that rates will remain at higher levels for some time.
  • Financial markets aren’t fully sold on the Fed’s forward guidance and believe that Fed Funds rate increases will top out after a likely further 25 basis point increase in March and then pausing before rate cutting in the second half of the year to offset a U.S. recession.

The GDP growth number reminds us of a generally solid economy, but is not as good as it appears.

  • The 2.9% (annualized) growth in Q4-2022 was mainly a result of unintended inventory increases likely to be reversed in 2023, a bigger decline in imports than exports and a rebound in non-defense US Government spending.
  • Real consumption declined by 0.3% (m/m) in December and 0.2% in November which are indicators that the economy is near or already in a recession.
  • The Index of Leading Economic indicators decreased by 1% in December following a decline of 1.1% in November, and it is down now 4.2% since June 2022.
  • This Friday’s jobs report is also likely to show slowing employment growth.

 

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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