Dogwood Wealth Management | Weekly Newsletter (Week Ending 1/13/22)
InvestingWeek In Review
Economy
December's inflation numbers came out on Thursday pretty much in-line with Wall Street's estimates. For the month, the Consumer Price Index declined by 0.1%. The Fed has made it its number one priority to bring inflation back down to 2%. If you look at the headline inflation number, which sums the past 12 months of data, inflation is at 6.5%. However, the headline number doesn't tell the full story. If you annualize the last quarter of inflation data, inflation is at 2%. If you feel like that's getting too cute with numbers, you can also annualize the last two quarters and arrive at, again, a 2% inflation figure.
A few months back it seemed like the Goldilocks scenario of a soft landing was impossible, but consider the recent data from both the labor market and inflation. For the moment, we have unemployment at 3.5% and inflation cooling rapidly. A soft landing may be back on the table, but whether or not the Fed can pull this off remains to be seen.
Markets
The S&P 500 finished the week up 2.6%, logging its best week since November. Stocks were higher on Thursday in response to the December inflation report, and continued higher as banks reported earnings and gave guidance on Friday. Over the next several weeks, we will continue to have companies report on their 4th quarter performance and give commentary about the economic environment we're in.
According to Ned Davis Research, the biggest challenge for the stock market in 2023 is a decline in corporate earnings. We've heard a lot about how we may see earnings decline in the first half of 2023, and that could lead to more volatility in the stock market. All of that may come to materialize, however, I came across an interesting chart last week that suggests declining earnings isn't necessarily an indicator of how the stock market will perform. In fact, there are several instances in which corporate earnings fell but the stock market rose.
While we may be in an economy where the number of eggs in your refrigerator has become a status symbol, there are still some reasons for optimism in this market.