It’s finally 2023! Hello New Year and good advice with the year that was. Last year was a tough year for the S&P 500 (SPY) by anyone’s measure… So let’s put that behind us and move on to 2023 to see what that holds for us. There’s a lot coming up in the next few weeks, so let’s get started right away. Read more below.
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(Enjoy this updated version of my weekly commentary originally published Jan. 5e2023 in the POWR Shares Under $10 Newsletter).
Market Commentary
You know what I’m most excited about? Not having to talk about the Federal Reserve every week and…
…Wait, what is that?
The minutes of the Fed meeting in December released Wednesday?
And the market sank Thursday on strong labor numbers because of the likely response from the Fed (more rate hikes)?
Oh and two Fed members made comments at different events today?
Welcome to the new year… same as the old year.
For better or worse, the Federal Reserve is still a major driver of the market. And that’s what we’re going to talk about in this newsletter. A lot.
But to the credit of Chairman Jerome Powell, the December meeting minutes make their 2023 outlook extremely clear.
“Read my lips: NO NEW RATE REDUCTION.”
Okay, that’s not a direct quote from anyone, but it might as well be.
While many, many investors have already discussed a possible policy reversal in 2023, the minutes showed that no Fed official expects a rate cut at any point during the year.
They even included a line warning investors to minimize market rallies.
“Participants noted that because monetary policy operated to a significant extent through the financial markets, an unwarranted easing of financial conditions, especially if caused by a misperception by the public of the Committee’s response function, undermined the efforts of the Committee to restore price stability.”
…..?
“In other words, if stocks continue to rise after bad economic news, the Fed will have to push to even higher final rates and unofficially add ‘weaker stocks’ to the mandate,” BMO Capital Markets strategists Ian Lyngen and Benjamin wrote in a note. Wednesday.
Ah.
Now, I know that may seem extremely strict – it reads like the Fed has its foot on the neck of the entire stock market (SPY).
And yet, St. Louis Federal Reserve Bank President James Bullard gave a speech earlier today saying that prospects for a soft landing are increasing due to continued strength in the labor market.
So a little bit bad and a little bit good.
We will know more in the middle of the month. There are a number of major economic reports scheduled for the next two weeks. Then we have the next FOMC meeting scheduled for the last day of January and the first day of February.
Each of these events will give us an additional piece of information that we can use to shape our market outlook for 2023. At the moment mine is cautious…
I will keep an eye on the data and the markets. As much as I’d like it to be any other way, I’m concerned that we’re in for another year like the one we just offered “cleaned up.”
But as you can see from some of the holdings in the current portfolio, we can still reap solid gains even if the Fed keeps the broader market under wraps.
What to do now?
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Best!
Meredith Margrave
Chief Growth Strategist, StockNews
Editor, POWR Newsletter Stocks Under $10
SPY shares closed Friday at $388.08, up $8.70 (+2.29%). Year-to-date, SPY has gained 1.48% versus a percentage increase of the benchmark S&P 500 index over the same period.
About the author: Meredith Margrave
Meredith Margrave has been a well-known financial expert and market commentator for the past two decades. She is currently the editor of the POWR growth and POWR shares under $10 newsletters. Learn more about Meredith’s background, along with links to her most recent articles.
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