Private Client Group

January 23rd, 2023

OJ Supply Squeeze, Inflation Falls Again, Retail Sales Drop in December 

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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

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Disclosure

1 Wall Street Journal. January 18, 2023. https://www.wsj.com/articles/why-orange-juice-is-so-expensive-right-now-11674010877?mod=djemRTE_h

2 Zacks Investment Management reserves the right to amend the terms or rescind the free How the Looking to Retire Soon? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.

3 Wall Street Journal. January 13, 2023. https://www.wsj.com/articles/inflation-weary-americans-find-some-relief-as-prices-fall-for-dozens-of-products-11673585724?mod=economy_more_pos11

4 Wall Street Journal. January 18, 2023. https://www.wsj.com/articles/us-economy-retail-sales-december-2022-11673990047?mod=economy_lead_story

5 Wall Street Journal. January 17, 2023. https://www.wsj.com/articles/chinas-economic-growth-fell-to-near-historic-lows-as-covid-took-a-bite-11673921199?mod=djemRTE_h

6 Zacks Investment Management reserves the right to amend the terms or rescind the free How the Looking to Retire Soon? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.


DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

It is not possible to invest directly in an index. Investors pursuing a strategy similar to an index may experience higher or lower returns, which will be reduced by fees and expenses.
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