It’s finally 2023! Hello new year and good riddance to the year that was. Last year was a rough one for the S&P 500 (SPY) by anyone’s measurement… So let’s put that behind us and move on with 2023 to see what that has in store for us. There’s a lot coming up in the next few weeks, so let’s jump right in. Read on below.
(Please enjoy this updated version of my weekly commentary originally published January 5th, 2023 in the POWR Stocks Under $10 newsletter).
You know what I’m most excited about? Not having to talk about the Federal Reserve every single week over and over again and…
…Wait, what’s that?
The minutes from the Fed’s December meeting were released Wednesday?
And the market sank Thursday on strong labor numbers because of the Fed’s likely reaction (more rate hikes)?
Oh, and two Fed members gave remarks at different events today?
Welcome to the new year…same as the old year.
For better or for worse, the Federal Reserve is still a big market driver. And we’re still going to be talking about it in this newsletter. A lot.
But to Chair Jerome Powell’s credit, the minutes from December’s meeting make their 2023 outlook extremely clear.
“Read my lips: NO NEW RATE CUTS.”
Okay, that’s not a direct quote from anyone, but it might as well be.
Even though many many many investors have already been talking about a potential 2023 policy pivot, the minutes showed not a single Fed official expects a rate cut at any point during the year.
They even included a line warning investors to keep the market rallies to a minimum.
“Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.”
“Said differently, if equities continue to rally on bad economic news, the Fed will need to push forward to an even higher terminal rate and unofficially add ‘weaker stocks’ to the mandate,” wrote BMO Capital Markets strategists Ian Lyngen and Benjamin in a note Wednesday.
Now, I know that may seem extremely dour — it kind of reads as if the Fed has its foot on the neck of the entire stock market (SPY).
And yet, St. Louis Federal Reserve Bank President James Bullard gave a speech earlier today saying the prospects of a soft landing are rising due to the continued strength in the labor market.
So, a little bad and a little good.
We’ll know more by mid-month. There are a number of important economic reports scheduled to be released in the next two weeks. Then, we have the next FOMC meeting, scheduled for the last day of January and the first day of February.
Each of these events will give us one more piece of information we can use to form our 2023 market outlook. Right now, mine is cautious…
I’ll be watching the data and the markets. As much as I wish otherwise, I am concerned that we’re in for another year like the one we just bid “good riddance” to.
But as you can see from a few of the positions in the current portfolio, we can still rake in solid profits even if the Fed keeps the broader market under their thumb.
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All the Best!
Chief Growth Strategist, StockNews
Editor, POWR Stocks Under $10 Newsletter
SPY shares closed at $388.08 on Friday, up $8.70 (+2.29%). Year-to-date, SPY has gained 1.48%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Meredith Margrave
Meredith Margrave has been a noted financial expert and market commentator for the past two decades. She is currently the Editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Meredith’s background, along with links to her most recent articles.