Dear clients and friends,

At Perseus Wealth it is essential to us that you are well-informed about what is happening in the markets. Here are a few of the critical topics of conversation that may deserve the most attention this month.   If you have any questions or would like to expand upon the conversation, please reach out.

What’s Happening: In October, the Consumer Price Index (CPI) showed headline inflation was flat on a monthly basis, slowing considerably from the 0.4% increase in prices in September[1]. The year-over-year increase of 3.2% was helped by falling gas prices, which fell 5%, while food prices continued to increase. If gas prices continue to fall, then November’s inflation report may show the headline number hitting or falling below 3% for the first time since February 2021. The cost of “shelter” plays one of the largest roles in inflation numbers, historically accounting for as much as 1/3 of total inflation, and had a major role in September’s price increases as well (making up three-quarters of the yearly price increases!). However, shelter costs have a significant lag in reflecting the impact of Fed rate increases. Data from Zillow, as well as a recent report from the San Francisco Fed, show that shelter price increases may finally be slowing significantly, potentially improving the odds that the Federal Reserve may refrain from hiking rates even higher. Overall, the current environment may be conducive to sustained improvement in the inflation picture, though monthly data may continue to be a bit noisy.

On the labor front, the October jobs report revealed a significant slowdown in nonfarm payroll growth and a slight uptick in the unemployment rate[2]. Payrolls increased at a slower rate compared to September, along with some negative revisions to the past month’s reports. The auto workers strike impacted manufacturing job growth, though that should bounce back later. This latest report suggests a broader trend of a cooling jobs market that may also help the inflationary landscape and may have been a significant contributor to the Federal Reserve's decision to hold off on raising interest rates for the second consecutive meeting.

Consumer attitudes have weakened again in the latest report by the University of Michigan. In their preliminary November survey, consumers’ feelings toward both current and future economic conditions slipped, the fourth month in a row that overall attitudes have worsened[3]. Recent pain at the pump may have contributed to this decline, as expectations of future gas prices rose to the highest so far this year and short-term inflation expectations remain high. The worsening sentiment is more pronounced in younger and lower-income consumers, while sentiment among the top one-third wealthiest consumers, especially those who own stocks, improved.

The Bottom Line:  Economic data and, especially, survey data continue to be noisy. Sentiment in the market and the overall economy is volatile and impacting how the market is digesting the latest data. Despite repeated pronouncements from the Fed chairman that rates can be expected to remain “higher for longer”, the recent positive data releases have encouraged the markets to price in not only few or no additional interest rate increases but a Fed pivot to easing sooner than previously expected. The question yet to be answered is the determination of the impetus for such an anticipated rate decrease: if job growth, consumer spending or the economy were to slow down too fast (as in a recession), then a drop in rates could be as a result of trouble in the markets. If, on the other hand, inflation continues to show the kind of improvement it has of late, thereby encouraging the Fed to back off from the 'higher for longer' mantra, the impacts on the markets should be excellent. History indicates a period of Fed rate increases are much more likely to generate the former (recession) than the latter, so we continue to suggest a protective investment stance for portfolios while we carefully monitor the employment, spending and economic data for the next several months.

Best always,

Sean and John

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested directly. The economic forecasts outlined in this material may not develop as predicted, and there can be no guarantee that any strategy will be successful.

[1] Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm

[2] Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm

[3] University of Michigan, http://www.sca.isr.umich.edu/