Dear clients and friends,
At Perseus Wealth it is important to us that you are well informed about what is happening in the markets. Here are a few of the key topics of conversation that deserve the most attention this month. If you have any questions or would like additional detail, we would love to participate in further discussions.
December now marks three months in a row with improving news on inflation. Monthly prices declined by 0.1%, while annual prices increased by only 6.5%, down from a 7.1% increase in November. Core inflation, however, which excludes volatile energy and food prices, ticked up 0.3% compared to November’s 0.2% rise. The report showed energy prices fell 4.5% despite a rise in natural gas prices during the cold weather around Christmas and prices on used and new cars fell - the first time in two years that prices on new cars have declined.
Despite the job market remaining fairly tight, the pace of new jobs continues to slowly cool down: 223,000 new jobs were added to the economy last month, the fifth month in a row of fewer new jobs than the prior month. Despite a lot of negative headlines about the residential housing market, total construction jobs increased on average by 19,000 per month in 2022. Overall, the unemployment rate declined from 3.7% to 3.5% last year.
Consumer sentiment, while still pessimistic from a historical standpoint, improved substantially in the preliminary January report, rising to 64.6, from 59.7 in December. It marks the highest the index has been since last April with respondents expressing an improved view of their personal finances and the long-run economic outlook. Fears about the headline item for much of last year, inflation, is helping the sentiment readings: shorter-term inflation expectations are down to their lowest levels since April 2021.
The bottom line:
The inflation trend is moving in the right direction and has positive momentum after 3 months of improvement. While it might be thought this could give the Fed some breathing room (to stop raising rates or even ease a bit), the Fed is likely to tighten a bit further in the near term. While a cooling jobs market may help, there still may not be enough slack within the labor market for the Fed to back off entirely. The language coming from the Fed, depicting their view of the overall economic picture, is likely to play a critical role in market sentiment going forward. Any surprises or abrupt changes will likely pose a risk to the early strength of the market in 2023.
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 into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that any strategy will be successful.
 Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
 Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
 University of Michigan’s Consumer Sentiment Index, preliminary January release, http://www.sca.isr.umich.edu/