Hope you are all doing well. After two positive weeks in a row, the major U.S. stock indexes fell around 3% to 4%. Investors worried that recently mixed inflation data could challenge the U.S. Federal Reserve’s expectations of slowing the pace of interest-rate increases. This week’s prisoner swap with Russia brought Brittney Griner home. I have broken down this week’s update using quotes from Rudolf Abel’s character in Bridge of Spies, a movie about another famous prisoner exchange.
Well, the boss isn’t always right. But he’s always the boss.
Releasing oil from the strategic petroleum reserve as President Biden continues to do is not a long-term solution. While I don’t necessarily agree with the President’s strategy it does seem to be having the desired effect. The price of U.S. crude oil fell around 11% for the week to less than $72 per barrel. The latest weekly decline pushed oil prices into negative territory on a year-to-date basis, as oil ended 2022 around $75. The latest price is down nearly 23% from a recent high in early November.
I’m not afraid to die…although, it wouldn’t be my first choice.
China is starting to relax its 100% fear, 0% percent Covid policy. China’s government on Wednesday eased some of the strict COVID-19 rules that have recently weighed on the world’s second-largest economy. Leading up to the announcement, a Chinese stock index rallied for five consecutive weeks in anticipation of the policy changes. The relaxation of the rules should also help the supply chain and could further bring down inflation. This is a big development and one that frankly is not getting enough attention. The eased restrictions will allow business to operate more normally and should have a positive impact on our economy as well as China’s.
What’s the next move when you don’t know what the game is?
There is not yet consensus around the Fed’s ability to ratchet back on rate hikes in the coming months. Expect rate hikes will continue to be the primary driver of stock- and bond-market returns as we move through the first half of next year. It’s hard for global central banks to operate in this environment. The speed of the Fed’s rate hikes has forced bank officials with the World Bank and the International Monetary Fund to raise rates more than they would like to. On Friday they expressed concern about a worsening outlook for the global economy and the potential for a recession. The IMF currently forecasts global growth will slow to 2.7% in 2023, down from expectations of 3.2% this year. The goal is to get inflation down without driving the economy off a cliff. Inflation is dropping but not in a consistent linear way. The gyrations inflation continues to move markets as the market’s expectation of the central bank’s game plan shifts with each gyration. Expect stocks to continue this roller coaster ride until the Fed pauses with the rate hikes which, I think will be around April or May not January or February like many are forecasting. Once the pause occurs expect the next bull market to begin with sharp bounce in growth stocks like Apple and Microsoft.
If you’d like to speak about your investments or your plan, my calendar link is below and you can schedule a phone or zoom appointment, please note the calendar will not allow you to schedule the final 3 weeks of the year. I am working just not allowing self-scheduling during that time. If there is something specifically you would like to touch base on before the end of the year then let me know by email and I will make accommodations.
