Celebrate because He’s Risen!!
MARKET WATCH
Spring weather here in the east keeps trying to exert itself as winter’s grasp grudgingly gives way. This is a bit like the bout of inflation we’ve experienced all last year and through the first quarter of this year. While progress is being made toward subduing the inflation beast, it is still evident this budget wrecking demon is still wreaking havoc with business and personal budgets.
On March 31, 2023, the Bureau of Economic Analysis (BEA) released the Personal Income and Outlays Report which details the PCE price index for February. This report is the Fed’s favored measure for assessing their progress controlling inflation. The PCE increased 0.3 percent in February as prices for goods increased 0.2 percent and prices for services increased 0.3 percent. Food prices increased 0.2 percent and energy prices decreased 0.4 percent. Excluding food and energy, the PCE price index increased 0.3 percent.
From the same month one year ago, the PCE price index for February increased 5.0 percent. Prices for goods increased 3.6 percent and prices for services increased 5.7 percent. Food prices increased 9.7 percent and energy prices increased 5.1 percent. Excluding food and energy, the PCE price index increased 4.6 percent from one year ago. As you can extrapolate from these numbers, the Fed’s goal of bringing inflation down to 2.0 percent, even by this measure, has still not been achieved.
The other gauges of inflation, the Consumer Price Index (CPI) and the Producer Price Index (PPI) were released in mid-March and are due to be released again, after Easter, in mid-April. These measures also show this bout of transitory inflation to be quite persistent, but also show progress is being made. The CPI increased 0.4 percent in February, and 6.0 percent over the last 12 months. The index for all items less food and energy increased 0.5 percent in February and 5.5 percent over the year. The PPI decreased 0.1 percent in February. Prices for final demand goods fell 0.2 percent, and the index for final demand services edged down 0.1 percent. Prices for final demand rose 4.6 percent for the 12 months ended in February. These measures show we’re trending downward, hence short-term interest rates continue to rise.
Meanwhile, the old adage “Don’t fight the Fed” is being ignored by the bond market. This persistence by bond investors, who are betting the Fed will need to lower interest rates sooner than later, continues to depress long-term yields resulting in a negative yield curve. We’ve discussed in previous newsletters the relevance of a negatively sloped yield curve as a harbinger of recession, yet the Fed has not been deterred from its rate increasing regime, even with a banking issue. So, who will prevail? As we proceed into a shortened trading week, it seems as though the stock market may believe Jerome Powell when he says the Fed will do what it takes.
The stock market indexes have exhibited some resilience in the face of the banking issues seen at the end of the quarter. All the indexes finished the first quarter positively with the NASDAQ*, leading the charge closing at 12,221.91 which was a 16.77 percent year to date (YTD) increase. The S&P 500* ended the quarter at 4,109.31 gaining 7.03 percent YTD. The Dow Jones Industrial Average (DJIA)* finished the first quarter barely unchanged from its year end close at 33,274.15 with a YTD change of +0.38 percent. This has been a decent start to the year, despite some challenging circumstances.
Whether the Federal Reserve can achieve the elusive soft landing for the economy by raising rates enough to slow it down without causing a recession remains to be seen. There is no doubt inflation has cooled considerably from its lofty peak last summer and continues to subside slowly. If the economy continues to add jobs at or near the pace it has maintained over the last eleven months and GDP can continue to grow, we might be able to avoid a recession. The Fed is close to the end of its rate hiking regime and could pause at any time to analyze the data more closely.
If you have any questions or concerns about your portfolio or any of the economic data you read or hear about, please contact me at any time.
IRA CONTRIBUTIONS FOR 2022 AND THE EMPLOYMENT REPORT
For the tax year 2022, the latest date by which you can contribute to your IRA and receive a tax deduction is April 18, 2023. The total amount of contributions you can make to all your traditional IRAs and Roth IRAs can't be more than $6,000.00. However, you can contribute $7,000.00 to your IRA if you are 50 years of age or older.
The SEP IRA has a bit of a different rule in that if you’re contributing to a SEP IRA, the deadline is the date by which the tax return is due, which is April 18, 2023. However, in the case of the SEP, if an extension is filed, then the date by which the contribution to the SEP is due becomes the date on which the tax return is due including the extension. So, a six-month extension would mean the SEP contribution would be due by October 18, 2023.
On Friday, April 7, the Bureau of Labor and Statistics (BLS) releases the jobs report for March. Expectations are for nonfarm payrolls to increase by 200,000 which is 111,000 fewer than in February. The unemployment rate is seen remaining unchanged at 3.6 percent, near a historic low. Job growth has exceeded expectations for eleven consecutive months, the longest such streak since 1998, according to data compiled by Bloomberg.
Strong job growth has been one of the reasons the Fed has been able to continue to raise interest rates, which they did at their March meeting, when they raised the Federal Funds rate to the 4.75% - 5.00% level. With 10.45 million job openings, or 1.8 jobs open for every 1 unemployed person, at least the Fed mandate for maximizing employment is being maintained.
HAS THE BEAR RUN ITS COURSE ? ONLY TIME WILL TELL GOING FORWARD
In the previous newsletter, I discussed some of the speculative excesses of 2022, such as meme stocks, NFT’s, SPACS and of course the flame-out of the cryptocurrency exchange, FTX. As if these weren’t enough, as the first quarter of 2023 was wrapping up, we got to see an honest to goodness pair of bank runs at Silicon Valley Bank and Signature Bank, as well as the shotgun marriage of Credit Suisse to UBS across the pond. Whether this was the culminating event of the bear market of 2022, which began in January of 2022, remains to be seen. As for now, the low of 3,577.03 for the S&P 500*, experienced on October 12, 2022, seems to have held as a bottom.
Since nobody has a crystal ball, it is only in hindsight the beginnings of bull and bear markets as well as recessions can be identified. We may currently be in the midst of one of those defining moments. Since the low reached in October has held, so far, it could be the markets are already in the next bull market phase. In order for this to be the case, the S&P 500* would need to achieve higher highs going forward, and of course not go lower than that October low. On February 13, 2023, the S&P 500* climbed to 4,137.29 before pulling back. So, this would be a higher high of which I spoke earlier.
One of the definitions of a bull market is when an index increases 20 percent from its low point. That threshold will be met if the S&P 500* rises to 4,292.44 which would be 20 percent higher than the October low we discussed. The last time the index was at that level was in mid-August 2022. Of course, even if we are in that new bull market, the index still needs to rise to 4,796.56 to get to the all-time high for the S&P 500* set on January 3, 2022. Events like the indictment of former President Donald Trump certainly don’t help stabilize things, but as of Friday afternoon, the markets yawned!
Weaponizing the Department of Justice against political opponents is the kind of behavior exhibited by despots of third world countries and tyrannical dictatorships. It is embarrassing to me, as a citizen of the US, to hear this when it happens here. Unfortunately, this is not the first instance of this type of behavior, and I remember when Trump was uttering his infamous “Lock Her Up” slogan regarding Hilary Clinton, he was also, in effect, threatening to weaponize the criminal justice system against her. Bill Clinton was plagued by this during his Presidency, and Richard Nixon was forced to resign his Presidency in disgrace in 1974.
Although alarming, there is a tidbit of humor in all this controversy. Insofar as the claim of President Trump being the “only” President to be arrested, that’s not entirely true. President Ulysses S. Grant was arrested for speeding in a horse drawn carriage on the streets of Washington, D.C. in 1872. The first time he committed the infraction, he was issued a warning, but when he was caught the very next day speeding through D.C., he was in fact arrested.
All kidding aside, there are enough issues we face as a country which could derail the markets, think budgets, debt limits and China. For the time being, the markets are beginning to look toward a time of lower inflation and hopefully no recession. This remains to be seen.
Company Information
John H. Kaighn offers various products and services under the trade name of Jersey Benefits Advisors.
PO Box 1406
Ocean City, NJ 08270
Phone: (609) 827-0194
Fax: (856) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
John H. Kaighn is an Investment Advisor Representative & Registered Representative of Royal Alliance Associates, Inc. Securities and Advisory Services are offered through Royal Alliance Associates, Inc. (RAA) Member FINRA & SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA.
10 Exchange Place
Suite 1410
Jersey City, NJ 07302
Royal Alliance Associates, Inc. is not affiliated with Jersey Benefits Advisors or Jersey Benefits Group, Inc.
Insurance Services and Third Party Administration offered through Jersey Benefits Group, Inc., a licensed Insurance Agency in the State of New Jersey.
PO Box 1406
Ocean City, NJ 08226
Phone: (609) 827-0194
Fax: (856) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
All opinions expressed in this newsletter are independent of Royal Alliance Associates, Inc. and solely those of John H. Kaighn and Jersey Benefits Advisors.
*The S&P 500, the DJIA, the NASDAQ and others referenced are unmanaged indices that are widely used as indicators of Market Trends. Past Performance does not guarantee future results and the performance of these indices does not reflect the fees and charges associated with investing. It is not possible to invest directly in an index.
*Dollar Cost Averaging through a systematic savings plan is an excellent way to build an account without a sizeable initial investment. Saving a portion of our pay each month is very important. Company sponsored pension plans are one method to save and should be used for retirement. Other systematic investment accounts, such as ROTH IRA’s, Traditional IRA’s, Coverdell Accounts, 529 Plans, Brokerage Accounts and Annuities can also be opened, and debited directly from checking or savings accounts. For more information, just call to set up an appointment. Referrals are always welcome.
John H. Kaighn
