Jan 22, 2024

Waiting on the Long Awaited Soft Landing

Weekly Market Commentary

Economists have been warning for quite some time that Fed rate hikes will slow economic growth. Whether it results in a soft landing, which is the preferred outcome for investors, or a hard landing (recession), the rate hikes would be expected to blunt economic activity, at least to some degree.

However, much of the recent economic data suggests the economy continues to expand at a modest pace. For example, retail sales have been upbeat through December—Figure 1.

Retail sales are released monthly by the U.S. Census Bureau. The data are adjusted for seasonality, such as Christmas, but not adjusted for inflation. Using the Consumer Price Index for Goods, a subcomponent of the CPI, we can subtract out the monthly change in total retail sales and approximate inflation-adjusted sales (excluding the effect of a change in prices).

Sales have been up in seven of the last eight months. Increases have topped or matched 0.5% in five of the last eight and three of the last four months (Figure 1).

Consumers are spending amid job growth and modest increases in wages.

Through December, there’s little evidence to suggest that higher prices or economic anxieties are discouraging shoppers or confirming talk that shoppers favor experiences/travel over goods.

Restaurants, which have been among the price-hike leaders, haven’t discouraged most folks from eating out, as sales are topping inflation over the period surveyed—Figure 2. When economic storm clouds gather, we’d expect dining out to take a back seat to saving money.

We’ll get a clearer economic picture when Q4 Gross Domestic Product is released this week. On Friday, the S&P 500 Index eclipsed its early 2022 high and closed at a record (see table of returns). Please let me know if you have questions or would like to discuss any other matters.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Advisor. Securities offered through Valmark Securities, Inc., Member FINRA/SIPC | 130 Springside Drive Suite 300 Akron, OH 44333-2431 | 800.765.5201. FDP Wealth Management, LLC is a separate entity from Valmark Securities, Inc. If you do not want to receive further editions of this weekly newsletter, please contact me at (949) 855-4337 or e-mail me at info@fdpwm.com or write me at 8841 Research Drive, Suite 100, Irvine, CA 92618. FDP Wealth Management, LLC, Valmark Securities, Inc. and their representatives do not offer tax or legal advice. You should consult your tax or legal professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

RELATED POSTS

Then and Now

Overbuilding, speculation, and easy access to credit encouraged a housing boom and a bust in the 2000s. Sales cratered later in the decade, and along with it, prices tumbled. Today, housing sales have plummeted once again.

Powell’s Victory Lap (Sort Of)

Fed Chief Powell’s much-anticipated speech against the picturesque backdrop of the Grand Tetons in Jackson Hole, WY, virtually assures that the Fed will reduce interest rates next month. In a short 16-minute speech, Powell said the magic words. “The time has come for policy to adjust.

Economic Anxieties Subside

As expected, the Federal Reserve kept its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. After holding the fed funds rate steady for a year, Fed Chief Jay Powell twice-mentioned that a September rate cut is on the table at his press conference.

A Rollercoaster and the Carry Trade

As expected, the Federal Reserve kept its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. After holding the fed funds rate steady for a year, Fed Chief Jay Powell twice-mentioned that a September rate cut is on the table at his press conference.

A September Rate Cut is on the Table, Softer Economic Data Raises Worries

As expected, the Federal Reserve kept its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. After holding the fed funds rate steady for a year, Fed Chief Jay Powell twice-mentioned that a September rate cut is on the table at his press conference.