January Economic Update
Market Summary
December ended the year with the stock market posting another monthly gain due in large part to the Federal Reserve indicating a policy shift could be in play as we head into 2024. The S&P 500 moved higher by 4.42%, the Nasdaq Composite posted a 5.51% gain, while both the Dow Jones Industrial Average rose by 4.84%. (1)
The Federal Reserve
Simply put, last month was dominated by news from the Federal Reserve which began on December 1st when Fed Chair Jerome Powell spoke as a guest at Spelman College. At this event, there was little deviation from his policy stance. Specifically, he stated the Federal Reserve was not considering lowering interest rates any time soon as there remained a great deal of hesitation to loosen financial conditions in fear of a second wave of inflation occurring. This was consistent with Powell’s stance for virtually the entire year when asked about when interest rates could be lowered. (2)
Less than two weeks later on December 13th, Powell’s stance had a major shift during last month’s Federal Reserve interest rate decision and subsequent press conference. Powell stated the Fed committee is now considering cutting interest rates sometime in 2024 with forward guidance indicating rates ending the year approximately 0.75% lower than their current levels. Powell went on to say that any future interest rate decisions will be heavily reliant upon economic data as it unfolds and the Fed’s outlook into this year is unclear. (3)
The market’s initial reaction to this change to the Fed’s monetary policy stance was positive with the major market indices moving higher in the days following the press conference. As time progressed, some uncertainty began to weigh on Wall Street as the speed in which the Fed pivoted was unusually quick, leading some to question whether the Fed is rapidly starting to see economic strains that could force them to begin lowering interest rates. This speculation has been fueled by previous Fed policy changes which are usually telegraphed to the market well in advance, typically 6-18 months, whereas this potential policy shift occurred in only 13 days. As of the writing of this newsletter, most of the major market indices have retreated back down to the levels where Powell’s announcement was initially made.
Looking Forward…
January and February will be relatively quiet on the Federal Reserve front as their next interest rate decision will not be announced until March 20th. The market will be looking to other clues in economic data leading up to that announcement to gauge whether the Fed could do their first rate cut at that meeting.
Inflation will remain at the forefront with last month’s Core CPI showing no progress year-over-year remaining at 4%, which was the same as the November release. Consumers will also be front and center as more data has continued to point to a slowdown in spending with credit card delinquencies and debt burdens continuing to rise. January will also kick-off earnings season which will provide more clues to the strength of the underlying economy and the consumer. (4)
Monthly Financial Tip:
Given the desire to travel and live well, the first few years of retirement may be expensive ones. Before and during those years, be mindful of economic and market cycles. They could affect your portfolio, and, by extension, your plans.
Citations:
1. WSJ.com, Dec 31, 2023
2. Federalreserve.gov Dec 01, 2023
3. Federalreserve.gov Dec 13, 2023
4. Investing.com Dec 12, 2023
Disclaimers:
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
