9 Steps for Investment Success

Hey Santa, Do You Plan on Showing Up?
9 Steps for Investment Success

Weekly Market Outlook
By Keith Schneider and Donn Goodman

To our friends at Southern Boating Magazine, we hope you are getting ready for a great Christmas (or Hanukkah) holiday. Lots to cheer about, and we are certainly blessed to have you all in our lives. We wish you and your families a joyful holiday season.

This week started off in a positive fashion. On Tuesday, before the open, the CPI (Consumer Price Index) came in less than expected at 0.1% for the month of November and year-over-year of 7.1%. The tape (market) became frantic in celebration. This sent the Dow up over 700 points right out of the gate. The shorts were covering in a fury… and then…

The fade kicked in. The opening gap up was filled by midday.

However, when the market closed on Tuesday, the positive bias remained. While the gains were diminished, they were positive nonetheless, and this led writers to say, “The Fed can now pivot.”

These past few weeks, we have been sharing charts, graphs, and commentary from numerous sources showing the positive seasonality that exists. Especially compelling have been the historical studies showing that after a midterm election of a first-term President, the stock market has an upward bias. We have also shared tables showing that when the market is down more than 15% at this point in the year, the next 12 months are typically favorable. In case you want to reread or review these recent Market Outlooks, here is the link to the archives.

We want to believe these seasonality charts and positive market prognosticators. We are waiting patiently for the Santa Claus Rally that is supposed to arrive.

But that was not the case on Wednesday when Chairman Powell announced that the Federal Reserve was ONLY raising rates by 0.50% (50 basis points). The market remained strong, up over 1%, as investors believed this meant the Fed was almost done with its hawkish activities. Then…

The Chairman spoke at his Press Conference. Here are his exact words:

“We’re into restrictive territory,” Fed Chairman Jerome Powell told reporters in Washington. “It’s now not so important how fast we go. It’s far more important to think what the ultimate level (and) is how long do we remain restrictive.”

“There is a strong view on the committee that we’ll need to stay there until we’re really confident that inflation is coming down in a sustained way and we think that will be some time,” Powell cautioned.

The stock market sold off hard. The bond market remained steady, especially the long end of the curve.

The Fed is Raising Rates at a Furious Rate (this will always have a negative effect on stocks)

The Fed is very aware that its hawkish plan will likely cause pain to consumers. However, it is tasked with getting inflation back down to 2%, and now everyone is acutely aware that it will do what it takes to get it there. We have often commented during late 2021 and most of 2022 that inflation is an insidious and punishing cost on 90% of society. It was reported this past week that a majority of Americans are living paycheck to paycheck and many folks have begun to reduce their consumption habits, including spending at restaurants, retail purchases (apparel), and travel.

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