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March Economic Update

Market Summary

Stock prices pulled back into the now nine-month trading range in February due to concerns about inflation remaining elevated, the labor market remaining tight, lower corporate earnings, and the Federal Reserve signaling they will maintain their tight monetary stance into the second quarter. The Dow Jones Industrial Average retreated -4.19%, the S&P 500 Index pulled back -2.61%, and the Nasdaq dipped -1.1%. (1)

Economic Developments

We began last month on a positive note with stocks advancing at the beginning of the month. Optimism was waned after strong employment data was released for the month of January showing the U.S. added 517k jobs – well above the consensus estimate of 187k. While this is positive news for the economy, concerns once again were raised regarding the labor market remaining too tight which will force the Federal Reserve to continue raising interest rates higher. (2)


By mid-month, higher-than-expected data from the Consumer Price Index (CPI) and Producer Price Index (PPI) made it clear that the Fed would need to remain vigilant with interest rates. While the year-over-year CPI change was lower by -0.1% from the previous report, the rate of decline had slowed after the previous six reports posted average declines of -0.43% each month.


The following week, Personal Consumption Expenditures (PCE) was released, which is the Federal Reserve’s primary benchmark for measuring inflation. For the first time since October, both PCE and Core PCE (which excludes food and energy prices) rose +0.4% higher, indicating inflation could stick around for longer which would force the Fed to continue raising interest rates. (3)


Looking Ahead...

The markets will continue to scrutinize each and every data point in March in an effort to gauge when interest rate increases will cease. This month’s inflation metrics will likely have a significant impact on the markets after the disappointing data received in February. The question on the minds of all investors and analysts is whether the inflation uptick was a single month “blip”, or a potential sign inflation could prove to be more difficult to reverse than many had expected.


The next Federal Reserve interest rate decision will occur on March 22. While the market is currently expecting another increase of 0.25%, there is an outside chance for 0.50% increase which will largely hinge upon the jobs and CPI reports which will be released on March 10 and 14, respectively. (4)


 

Monthly Financial Tip:

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Citations:

1. WSJ.com, February 28, 2023

2. FoxBusiness.com, February 24, 2023

3. WSJ.com, February 14, 2023

4. CMEGroup.com, February 28, 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.



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