We have been saying it for a while: inflation is falling and falling quickly. 2020 was about COVID and goods inflation. 2021 was about vaccination and service inflation. 2022 was about the Fed being too slow to react to the first inflationary spike in 50 years. And 2023 is about rapidly declining inflation due to the Fed hiking rates at the fastest pace in history. Financial conditions are tight and expensive. Eventually the Fed’s cocktail of higher rates and balance sheet shrinkage (QT) does work. Input costs lower, wage growth slower, used car prices down a lot. Prices and inflation are falling.
The positive market reaction this morning is to the CPI inflation data that just came out and noted core CPI inflation (excluding shelter costs) is back to pre-pandemic levels. The last shoe to drop in the Fed’s battle versus inflation will be shelter costs and that is likely only a few months away. Rents are already falling real time in major US markets and the overall economy is about to get hit with the biggest new wave of apartment supply in 50 years. It’s not enough to stop the Fed from hiking one last time next week, but I believe that will be the last rate hike in a long while. Powell and Co. can take a vacation.
The biggest negative I see right now is that sentiment has gone from “fear” just prior to the debt ceiling debacle, to “more greedy” today. I like it when market technicals are favorable like they still are today, but sentiment is dominated by an abundance of bearishness. Sadly, we can’t have it all, but complacency is in the air and when that happens big market advances seem to stall. Just setting some expectations on where we go near term.
Source: EISI as of July 12, 2023
Richard Barrett
Chief Investment Officer
Congress Wealth Management LLC (“Congress”) is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. For additional information, please visit our website at congresswealth.com or visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Congress’ CRD #310873.
This note is provided for informational purposes only. Congress believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic and market conditions; however, there is no guarantee that such statements, opinions and/or forecasts will prove to be correct. All such expressions of opinions or forecasts are subject to change without notice. Any projections, targets or estimates are forward looking statements and are based on Congress’ research, analysis, and assumption. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. This note is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this note. No portion of this note is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Investing entails the risk of loss of principal.
Comments are closed.