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 upcoming year, such as:
The U.S. Labor Market is an Ongoing Headache for the Fed – Headline inflation in the U.S. is heading in the right direction, with goods inflation falling significantly in the second half of 2022 as supply chain pressures eased and commodity prices fell from peaks. Falling goods inflation is good news, but the services side of the equation continues to cause problems for the Fed’s view on overall inflation. Fed Chairman Powell’s biggest concern is the effect the tight labor market has on wages, which in many cases influences companies to raise prices to make up for higher costs. Powell specifically remarked that “the labor market continues to be out of balance, with demand substantially exceeding the supply of available workers.” Data released this week didn’t help. The Labor Department reported that job openings in the U.S. remain above 10 million (as of the end of November), which far exceeds the roughly 6 million Americans out of work. Initial jobless claims in the final week of December – which gives a read on layoffs –fell by 19,000, which signals that employers continue to cling to workers. What’s more, according to a recently issued report by the Atlanta Fed, workers who stayed at their jobs experienced an average wage bump of 5.5% in November 2022 compared to the year prior, which is higher than the 3.7% wage growth reported in January 2022 and also marks the largest increase in 25 years. A persistently tight labor market is a problem for the Fed and also for the market’s hope for a “Fed pivot” in 2023. Ongoing tightness in the labor market could cause inflation to become entrenched, which also implies the need for higher rates.1
Keep Your Investments Protected in a Potential Bear Market!
Market volatility concerns come with a lot of worries from investors about how to manage their investments if the market reaches bear market territory.
Don’t despair! You can potentially avoid the most harmful hazards of a bear market on your investments by making use of some useful tools I offer in our free guide – The Zacks Bear Market Survival Kit.2
This guide discusses some key tools to prepare for a bear market, including:
In this guide, you’ll get our viewpoint on the most important moves you can make to weather a recession. Don’t wait—if you have $500,000 or more to invest, get this guide before the storm hits.
The Zacks Bear Market Survival Kit2
The Fed vs. The Stock Market – A closer look at the minutes from the December 2022 Fed meeting show a central bank increasingly concerned about stock market rallies. Part of the issue is that investors are anticipating a sharp decline in inflation in 2023, which in turn has driven hope that the Fed would stop raising rates and perhaps even lower them in 2023. The gap between where the market thinks inflation will land in 2023 and where the Fed sees inflation is meaningful – according to Barclays, the bond markets are projecting the consumer price index will fall to 2.6% by the end of 2023, which would arguably put the Fed’s preferred PCE price index very close to the 2% target. Meanwhile, the Fed raised its 2023 core PCE inflation forecast from 3.1% to 3.5% at its most recent December meeting. The Fed is increasingly concerned that the market’s optimism over lower inflation will also drive hope over a “Fed pivot” in the new year, which in turn will lead to market rallies. The problem with market rallies, according to the Fed, is that easing financial conditions could hurt their efforts to cool hiring and wage growth, which as mentioned above is a top concern.3
China’s Economy Suffers, for Now – China’s economy continues to reel from the hangover of “zero Covid” policies followed by the rapid spread of the virus as restrictions were lifted. Activity in China’s manufacturing and services sectors has plummeted to levels last seen during global economic lockdowns. China’s purchasing managers index (PMI) dropped to 47.0 in December, and anything below 50 signals a contraction. But that wasn’t even the worst data point – in the key services sector, PMI fell from 46.7 in November to 41.6 in December. The transition to an open economy is likely to be messy in the first quarter, particularly as winter months combined with low levels of natural immunity make handling Covid outbreaks much more challenging. But at the same time, a trough in economic activity argues for a strong rebound once the transition to reopening has taken place, much like the rest of the developed world experienced in 2021. The Chinese government has also signaled a willingness to inject fiscal stimulus into the economy, which could boost growth in the second half of the year and contribute to a rebound in the broader global economy.4
What Happens to Your Investments in a Bear Market? Investors should remember that inflation and volatility is a natural (if unpleasant) part of the economic cycle, but you can potentially avoid the most harmful hazards of a bear market on your investments by making use of some useful tools we offer in our free guide, The Zacks Bear Market Survival Kit.5
This guide discusses some key tools to prepare for a bear market, including:
If you have $500,000 or more to invest, get our free guide today. You’ll get our viewpoint on the most important moves you can make to weather a recession. Don’t wait—get this guide before the storm hits.
Disclosure