Prosperity Partners Blog
The Fed Presses the Pause Button
The Federal Reserve held the fed funds rate at 5.00–5.25% following ten consecutive rate increases that began in March 2022. The move was anticipated as policymakers had previously expressed their intention, allowing them time to assess the impact of previous rate hikes.
A New Bull Market
The S&P 500 Index, which tracks 500 large publicly traded companies, entered a new bull market last Thursday, according to the general definition of a 20% rise from the most recent low. The index hit an all-time high of 4,797 on January 3, 2022. It proceeded to decline 25.4% to the most recent low of 3,577 on October 12th. A bear market is typically defined as a 20% or greater drop from the closing peak to the closing trough.
Defying Expectations
May nonfarm payrolls surged past economists’ projections of 190,000 per DJ Newswires, soaring by 339,000 (see Figure 1) as reported by the U.S. Bureau of Labor Statistics (BLS). Surprised? Despite its strength, payrolls have mostly exceeded expectations in the past year. This serves as another reminder of the challenges of economic forecasting.
Fill ‘er Up
The days of pulling up to a gas station, rolling down the window, and asking the attendant to fill ‘er up are long gone. Nowadays, the responsibility falls on someone in the car to pump the gas. As we head into the summer season, it’s no coincidence that the price of gasoline tends to increase, especially as we approach Memorial Day weekend.
About That Earnings Apocalypse
Some investors were bracing for an earnings apocalypse. Once again, fears were exaggerated. It’s not the first time some have been expecting dire results. A CNBC story six months ago previewing Q3 profits suggested earnings could disappoint in a big way. They didn’t.
Easing Inflation, Stubborn Inflation
In the past, investors paid close attention to the monthly employment report. Today the focus has shifted to the CPI. Blame high inflation for the jump in interest rates, which has pressured the major stock market averages. The U.S. Bureau of Labor Statistics reported that while inflation eased in April, it remains high.
Crosscurrents
Here’s a paradox. What happens when an immovable object runs into an irresistible force? In today’s investing world, the Federal Reserve has been that immovable object, jacking up interest rates in order to quell inflation.
Making Heads or Tails Out of the Latest GDP Report
Gross Domestic Product (GDP) is the economy’s largest measure of goods and services. Preliminary data from the U.S. Bureau of Economic Analysis showed that GDP slowed from an annual pace of 2.6% in Q4 2022 to 1.1% in the first quarter of 2023.
Up or Down – Which Way From Here
Economic sentiment can shift on a dime. This year, terms like ‘soft landing (slowing growth, slowing inflation)’ and ‘hard landing (recession, slower inflation)’ have gotten the most play. Earlier in the year, a so-called ‘no-landing’ scenario (continued economic growth, high inflation) crept into the vocabulary. Occasionally, we hear ‘crash landing (steep recession, low inflation).’
Latest Inflation News Offers Some Encouragement
The slowdown in the rate of inflation last month was aided by food and energy prices. The Consumer Price Index rose 0.1% in March versus February amid a 3.5% decline in energy prices and no change in food prices (U.S. Bureau of Labor Statistics data). Grocery stores actually fell 0.3%, while food at restaurants jumped 0.6%.
Hiccups in the Job Market
There have been no flareups since the bank failures in early March, and the crisis continues to simmer on the back burner. But anxieties haven’t completely subsided. Last week the U.S. Bureau of Labor Statistics reported that job openings fell 632,000 in February to 9.93 million. That’s on top of a downwardly revised 670,000 in January.
Inflation – It Hasn’t Gone Away
Inflation was uppermost on the minds of investors, Fed officials, and policymakers until the failure of Silicon Valley Bank (SVB) forced price stability to play second fiddle to banking stability. The banking crisis has eased amid tentative signs that actions taken by the U.S. Treasury, the FDIC, and the Federal Reserve are having their intended effect: preventing contagion.