In today’s Steady Investor, we are taking a deeper dive into key factors that we believe are impacting the market and what’s to come this year, such as:
A Supply Squeeze for Orange Juice – Florida’s orange harvest hasn’t been this bad in 90 years. According to the Agriculture Department, Florida is expected to produce just 18 million 90-pound boxes of oranges, a startling 93% decline from the peak production reached in 1998. A combination of factors is driving the weak crop yield – the December freeze that swept most of the country came at a terrible time; Hurricane Ian wreaked havoc on a large portion of land where oranges grow; and a citrus disease continues to ravage crops in large numbers. For the first time, Florida will produce fewer oranges than California, and the trendlines indicate that poor crop yields are likely to continue. The number of Florida acres with orange trees has fallen by almost 50% since the late 1990s, and the weather and citrus disease barriers seem likely to continue. From a market perspective, frozen concentrate orange juice prices have reached a near record, and the price of orange juice at the grocery store has never been higher. Even though much of the U.S.’s supply of orange juice is made from oranges imported from Brazil and Mexico, strains in supply from Florida could keep upward pressure on prices for the foreseeable future.1
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U.S. Inflation Falls Again – Last week the Bureau of Labor Statistics reported that U.S. inflation – as measured by the Consumer Price Index (CPI) – fell for the sixth straight month in December. The broad CPI measure was seen rising 6.5% year-over-year in December, which was down from 7.1% in November and marks a significant decline from June’s 9.1% peak. When the volatile food and energy categories are stripped out of the CPI measure, prices rose by a lesser 5.7% in December, also encouraging but still a significant distance from the Fed’s goal of 2% average inflation. The inflation data is generally parsed-out between goods inflation and services inflation, of which the latter is the Fed’s main concern. Goods inflation has fallen for three straight months, as supply chain pressures have faded almost completely and as consumers shift spending to services. At this stage in the inflation narrative, investors should be eyeing the employment-cost index and wages, as these are the main concerns of the Fed. Regardless, the Fed appears on track to raise the benchmark fed funds rate by 25 basis points at its February 1 meeting.3
Retail Sales Fall in December – A Signal of Economic Weakness? – U.S. consumers pulled back on spending at stores, restaurants, and online in December. According to data released by the Commerce Department, retail sales fell by -1.1% from November to December, a slowdown reached the peak of the holiday shopping season. The weak reading came following a November decline of -1% from October, which was an atypically strong month for sales. The harsh winter weather in December played a role, but consumers were also seen pulling holiday purchases into October, as retailers offered early holiday shopping discounts to unload an inventory glut. Consumers also increasingly shopped for bargains in an inflationary environment, which had an impact on overall sales. Notably, the retail sales figures do not include spending on travel, housing, or utilities, which are figures released later in the month.4
China Had a Bad Year in 2022. Will It Recover in 2023? – China’s National Bureau of Statistics reported that the country produced 3% GDP growth in 2022, the second-worst year of output since 1976. The main culprit in 2022 was China’s unwavering pursuit of “zero-Covid” policies, which resulted in rolling lockdowns around the country and made production and consumption fluctuate in fits and starts. China’s abandonment of restrictive Covid-19 policies has given way to a massive surge in hospitalizations and deaths, which are likely to serve as even more headwinds in Q1. Looking ahead, however, if China follows the path of the rest of the world, the Covid surge should give way to some form of normalization, which could also lead to an economic resurgence in the second half of the year.5
Retiring Soon? – If you’ve been planning to retire for a while, now is the time to get ready! Retirement marks the end of one life stage, but also the beginning of another—full of new adventures and opportunities. To guide you through this new phase, we recommend a thorough review of your financial and investment situation so you can make any adjustments necessary to keep your plans and lifestyle on track.
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