• The economy continues to operate at a surprisingly robust pace.  Along with the stronger than expected January jobs data earlier this month, the Consumer and Producer Price Indexes and Retail Sales all surprised to the upside this past week.  The result was a transition back to economically sensitive stocks and away from secular growth.  We were satisfied to see even that rotation.  After the run-up the latter has experienced since the beginning of 2023 some profit-taking was in order.  However, we will watch to see if this transition has some legs.  At the present time, a well-diversified portfolio, including some international holdings and bonds is in order.
    We noted last week that investors can expect perhaps a pause, but no pivot from the Fed.  After the data referenced both above and below, a pivot over the near-term is certainly out of the question.  Even a pause becomes less likely as is evidenced by the preponderance of economists expecting the Fed Funds Rate to now peak at 5.50% rather than 5.25%.   The Open Market Committee of the Federal Reserve (FOMC) will meet again March 21-22.  To us, it’s all about the Fed’s intended glide path to 2% inflation, which at the present is unknown to the public.  How much of a slowdown is the Fed willing to accept to get to two percent?  Answer that and you will have the slope of the glide path.
  • A consolidation is in order.  Given the run-up off the mid-October lows and after a strong January, perhaps a breather is in order.  Given the recent bear market, that may send tremors through the minds of investors.  However, historically consolidations are healthy for bull markets as they provide dry powder to move higher.
  • Treasury yields move higher.  As a result of the strong economic data, the yield curve on U.S. Treasuries lifted across the board with the one-year bill closing at 5.00%.  At the present, for many of our clients with permanent fixed income needs, we are laddering bonds to avoid renewal risk or the risk that upon maturity of current holdings, yields will be lower.
  • Is anybody eating at home anymore?  Retail sales for January were released this past week with sales at bars and restaurants rising 7.19% m/m and by 25.24% over the past year.  We’ve heard it said that it is cheaper to eat out rather than eat at home.  Over course that is not true.  However, what is true is that Americans continue to spend the largess doled out by the Federal Government during COVID on entertainment, food or otherwise.  On the flip side, although spending on electronics and appliances rose 3.54% m/m, over the past year they have declined by 6.26%.
  • North American Rig Counts Hold Steady.  Over the past few weeks, rig counts in North America have held in at around 750.  At this level, enough oil is being pumped to support the market as well as the price of crude.  We will see if the continued opening of the Chinese economy tips that balance.
  • Food inflation remains elevated. Whether you’re going out to breakfast or eating home, it’s going to cost you more.  According to the Consumer Price Index (CPI), over the past year, the cost of eggs has risen 70.1%, butter and margarine 32.5% and cereal and bakery products 15.6%.  For those that say they’ll be eating dog food before long, maybe not as pet food has risen 15.1% over the same time frame.
  • Inflation rises during January.  After muted numbers over the prior two months, inflation at the Retail and Wholesale levels as measured by the Consumer (CPI) and Producer Price Indexes (PPI) rose more than expected with the CPI jumping 0.5% and the PPI rising 0.7%.  That said over the past three and six months, the rate of inflation has decelerating, disinflation by definition.  Over those time frames the CPI has risen at an annualized rate of 3.2% and 3.8% while the PPI has risen 3.2% and 2.8%.
  • Who would have thought that through that after a dismal 2022 the Consumer Discretionary ETF (XLY), led by Amazon and Tesla has risen b7 16.58% year-to-date while the Energy ETF (XLE) has fallen 3.41%.
  • Keep an eye out for the minutes of the most recent meeting of the Federal Reserve’s Open Market Committee (FOMC), to be released this coming Wednesday.  As always, they will provide some insight into what the members are thinking.
  • Upcoming Economic Reports scheduled to be released this week include – on Tuesday, January Existing Home Sales; on Thursday, a second look at Fourth Quarter Gross Domestic Product (GDP) and the Weekly Report of Initial Claims for Unemployment Insurance; and on Friday, January New Home Sales, January Personal Income and Spending and the final February Report from the University of Michigan on Consumer Sentiment.
  • As we turn toward the close of earnings season, along with others, several retailers will be reporting.  Some notables include Walmart (WMT), Home Depot (HD), Medtronic (MDT), Nvidia (NVDA), TJX (TJX), Intuit (INTU), Booking Holdings (BKNG), Alibaba Group (BABA), Moderna (MRNA), Netease (NTES), and Mercadolibre (MELI).

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