The Federal Reserve Held the Overnight Rate to a Range of 5.25% to 5.50% and Signaled Rates Will Go Lower Next Year… The all-important “dot plot” showed the consensus for the overnight rate at the end of 2024 to be 4.60%, down 0.50% from the consensus in October.
What it means— The high council (Federal Open Market Committee, FOMC) has spoken: the pivot has begun. I thought Powell would take the opportunity to tamp down dovish chatter in the markets, but instead he encouraged it. The central bankers are wary of pushing the economy into a recession, so they backed off of their tightening and see three rate cuts next year instead of two. The markets soared, with the 10-year Treasury yield falling under 4% and the Dow reaching a new record.
While this is the “go” sign for buying risk assets and (we hope) breaking the impasse in the property market, be careful of leveraged assets. Investors pushed long yields to around 4%. If the Fed lowers the overnight rate to 4.5%, then the yield curve will still be inverted. If you’re considering leveraged assets, look for lenders who make loans with ﬂoating rates.
The Consumer Price Index Rose 0.1% in November, Was Up 3.1% Over the Last Year…Annual core inﬂation has been up 4% for the past several months.
What it means— Inﬂation isn’t jumping higher, but it’s not decelerating quickly, either. Used car prices popped a bit and rents rose, although rents should ease over the ﬁrst quarter of 2024 as more units come on line. The big issue is the divergence between prices for goods and services. Prices for goods dropped as the shipping crunch eased, but prices for services pushed higher due to rising labor costs. The central bankers are watching these numbers but made it clear that they expect the next change in overnight rates to be lower.
Retail Sales Up 0.3% in November… Economists polled by the Wall Street Journal had expected sales to fall 0.1%.
What it means— Retail sales rose in November, giving investors another reason to cheer. While some people thought this holiday season would be average, the strong report for last month showed 2023 might end on a high note. Sales jumped at internet retailers and also at restaurants and bars. But take all of this with a grain of salt. Retail sales aren’t adjusted for inﬂation. While service items like restaurant and bar sales popped, sales for goods are gently falling when adjusted for inﬂation.
The 28th Conference of the Parties To Address Climate Change Resulted in Stronger Language, But Little Substance… Ironically, COP28 was held in the heart of oil production on the planet. The COP28 agreement calls for holding temperatures low and transitioning away from fossil fuels.
What it means— You just can’t make this stuff up. Roughly 100,000 people attended the COP28 meeting, including country representatives, experts, and lobbyists. The voting members agreed that holding the rise in temperatures to 1.5°Celsius this century would require immediate action and that tripling renewable energy would help. They also agreed that using less coal would help and that the world should transition away from fossil fuels. Right.
According to the agreement, we need to reduce greenhouse gas emissions by 43% this decade vs. 2019 emissions, but emissions now are rising, not falling. The petrostates are happily mapping out new oil and gas ﬁelds around the world, as Western nations browbeat their domestic energy producers to reduce their operations. As for the representatives, we should remember what these people do, not what they say. Like Davos, these “leaders” arrived on private jets to tell the world we’re in a crisis. Have they never heard of Skype or Zoom? As others have said, I’ll take them seriously when they act like the situation is serious, beyond righteous indignation.
How Do You Move a 120-Year-Old Building? With Soap, of Course… A company tasked with moving a 220-ton, 120-year-old historic Halifax, Canada, building 30 feet came up with an idea. Instead of risking damaging the building by putting it on rollers, they slipped it on a soapy track. It took 700 bars of Dove soap, but the move went off without a hitch. In addition to moving the building, it also made the construction site smell a bit better.
Data supplied by HS Dent Research
“When the facts change, I change my mind.
What do you do?” ~ John Maynard Keynes
Our plan is “the plan will change.”
What is your plan?
Relative strength measures the price performance of a stock against a market average, a selected universe of stocks or a single alternative holding. Relative strength improves if it rises faster in an uptrend, or falls less in a downtrend. It is easily applied to individual positions in your portfolio and to sectors and asset classes.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Investor Resources, Inc. (“Investor Resources”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Investor Resources. Please remember to contact Investor Resources, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Investor Resources shall continue to rely on the accuracy of information that you have provided. Investor Resources is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of Investor Resources’ current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at https://www.investorresourcesinc.com/. Clients Please Note: Advise us if you have not been receiving account statements (at least quarterly) from Charles Schwab & Co.™