INVESTMENT COMMENTARY & Outlook

January 2023

The fourth quarter started with several violent short covering rallies and helped to mark a definitive stock market bottom. Not only was October a strong month, but November also started on a positive note. The stock market temporarily lost its “mojo” in December after a hawkish FOMC statement and new interest rate fears emerged. The next Federal Open Market (FOMC) statement will be on February 1st, and we are anticipating a dovish statement due to moderating multiple inflation reports.

As you have repeatedly heard, the Fed never fights market rates, so if Treasury yields continue to moderate with better inflation reports, then the FOMC has to stop raising key interest rates. January has been characterized by weak economic news, like (1) slowing wage growth, (2) the ISM service index slipping into a contraction after expanding for 30 straight months, and (3) decelerating consumer price inflation due largely to moderating rental and housing costs (i.e., owners’ equivalent rent).

The Fed knew that by raising key interest rates it “pricked” the housing bubble. Existing home sales have fallen for several straight months and median home prices have been falling since July. Since owners’ equivalent rent is a major component in both the Consumer Price Index …