Is inflation rising again?

Eagle Wealth Management |
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Weekly Market Commentary



As we kick off 2024, the latest data is raising some concerns about inflation.

Let’s dive into some data and take a look.

Inflation is still one of the biggest risk factors we’re watching this year. Here’s why.
 

 

 

While inflation is still well below its 2022 peak, the data shows that the fight toward 2% still has pretty far to go.

Annual inflation has stubbornly remained above 3%, and the December report shows another tick upward.1

While market watchers are hoping the Federal Reserve will cut interest rates soon, policymakers warn easing off too soon could erode progress and cause inflation to “seesaw.”2

It’s likely that the Fed will be cautious and decide to wait for more data before lowering rates.

However, the longer they keep interest rates high, the more they risk hurting economic growth.

It's a tough act to balance and we expect the uncertainty to stoke market volatility.

The December jobs report looked strong, but may be masking some pain.

The latest employment report showed that the economy added a respectable 216,000 jobs. But many of those new jobs were in the public sector and other industries that aren’t sensitive to the economy.3

Small businesses are lowering their hiring expectations, and manufacturers and service companies cut jobs in December.

Another point of concern: jobs numbers have been revised downward in 11 of the last 12 months, suggesting that the economy may be shifting gears and slowing down.

Geopolitical issues are also adding clouds on the horizon.

Ugly wars in Ukraine and Israel are still burning, and attacks on shipping in the Red Sea are adding fresh concerns about global stability.4

In addition to the cost in human lives and misery, geopolitical uncertainty may weigh on economic growth and inflation.

On a positive note, December retail sales increased more than expected.5

Americans shopped more than anticipated in both November and December, showing that consumers may be in better shape than many economists feared.

While some analysts are already celebrating a “soft landing” and an end to recession worries, we’re still keeping our seatbelts buckled.

The economy is still growing, but we’re expecting to see bumps and potholes on the winding road to “normal” inflation levels.

While recession risks have lowered, we're still watching carefully.

We'll reach out with updates or recommendations as needed.

Questions? Concerns about market moves? Hit "reply" and let us know. We'll set up a time to talk.

Cautiously,


Your Eagle Wealth Team
 


The Week on Wall Street

Stocks finished higher last week, with big tech again leading amid lingering uncertainty over how continued economic strength would influence the Fed’s rate decision.
 

Stocks Dip, Then Rally 

Stock prices dropped early in the week before rising to new highs as the week ended. The four-day trading week began with more Q4 bank earnings, which disappointed. The news pushed the financial sector and the broader S&P 500 Index lower on Tuesday. The yield on the 10-year Treasury climbed after a Fed Governor said the central bank may not adjust rates as much as markets expect. That and a stronger-than-expected holiday retail sales report put pressure on stock prices.6,7,8

Tech stocks drove the Thursday rally, with the S&P and Nasdaq recouping their 2024 losses. Stocks continued their tech-led climb on Friday, with the S&P 500 rising to an all-time high—its first record close in over two years. The Nasdaq gained 1.70% on Friday, capping a solid week for the tech-heavy index.
 

Navigating The Middle

Sentiment see-sawed last week as investors tried to anticipate the Fed’s next move. The week was full of economic news that suggested continued resilience in the economy, which may add complexity to the Fed’s next decision.

December retail sales came in strong, +0.6% for the month, besting economists' expectations of +0.4%. November and December combined to depict a robust holiday shopping season. Unemployment dipped unexpectedly for the second week of January–a sign of a resilient U.S. labor market. That labor news and hotter-than-expected housing starts pushed the yield on the 10-year Treasury to 4.14%, its highest level in more than a month.9,10,11,12

 
 

 

Any companies mentioned are for informational purposes only, and this should not be considered a solicitation for the purchase or sale of their securities. Any investment should be consistent with your objectives, time frame, and risk tolerance
 

1. https://www.msn.com/en-gb/money/other/a-warning-shot-over-the-last-mile-in-the-inflation-battle/ar-AA1n23O5?ocid=finance-verthp-feeds

2. https://finance.yahoo.com/news/1-feds-bostic-warns-us-122602986.html

3. https://www.usatoday.com/story/money/2024/01/16/recession-signs-soft-landing-forecasts/72209418007/

4. https://www.reuters.com/business/red-sea-attack-fears-disrupt-global-trade-patterns-2024-01-16/

5. https://finance.yahoo.com/news/december-retail-sales-surprise-to-the-upside-133212009.html

6. CNBC.com, January  16, 2024.

7. CNBC.com, January 17, 2024.

8. CNBC.com, January 17, 2024.

9. CNBC.com, January 16, 2024.

10. MarketWatch.com, January 17, 2024

11. CNBC.com, January 18, 2024.

12. The Wall Street Journal, January 19, 2024.

Chart sources: https://fred.stlouisfed.org/series/CPIAUCNS#0, https://fred.stlouisfed.org/series/FEDFUNDS

 

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