Our Take: What's Changed?

Simply put, inflation has proven to be more stubborn than the markets had forecast as recently as January.  The job market, despite tech layoffs, is also remarkably resilient with unemployment rates hovering near historic lows at 3.4%.

Economists largely forecast a recession but can’t agree on the severity or timing.  Estimates range from second half of this year to latter half of 2025.

Let’s look at current expectations for the second half of this month and on into spring.  

March 10:  The US jobs report is expected to show 215K new nonfarm jobs with the unemployment rate steady at 3.4%.  It will be important to watch average hourly earnings (expected to be constant at 0.3% month-on-month and up 4.7% year-on-year) for sign of upward wage pressure.  Hours worked will also be notable after the sharp increase in January.  January was abnormally warm which increased employment relative to historical seasonal patterns in jobs such as construction and leisure and hospitality.   February was also warmer than usual, but less so than January, which might affect the report.  

March 14:  US CPI is expected at 0.4% month-on-month for both core and headline and 5.4% year-on-year for core (6.0% for headline).  A report in line with consensus should not give the FOMC much comfort, as the run-rate would still be close to 5% on a core basis even after 450 bps of tightening.

March 22:  US FOMC meeting is expected to deliver another 25 to 50 bps of rate hikes to lift the target range for the fed funds rate to 5.0% to 5.25%.  The futures market is pricing a 77% chance that the Fed hikes by 50 bps, but 25 bps is possible as the Fed has shifted gears to a more gradual pace of tightening that should ultimately lead to a wait-and-see pause at some point in the next few months.

Rates are expected to stay higher for a longer period of time.  Our guess is that we won’t see Fed Funds begin to drop until this time next year. 

The old saying of “a bird in the hand is worth two in the bush” may apply to our current investment environment.  Even though we subscribe to the opinion that the stock market bottomed in the October time frame of last year, it’s hard to pass up the virtually risk-free returns available in the shorter-term treasuries and CD’s. These rates won’t be available forever, so extending maturities into the three-to-five-year range makes sense, assuming we can capture roughly 80% of the Fed Funds rate.

Meanwhile, since October, short term rallies in stocks have given us a preview of what a sustained stock market recovery will look like.  By all appearances, we’re very well positioned for the recovery.  

Sincerely,

Ken & Michelle

This information has been drawn from sources believed to be reliable. Every effort has been made to assure the accuracy of the information, however, the accuracy of this information is not guaranteed. All investing is subject to risk, including possible loss of money you invest. Diversification does not ensure a profit or protect against a loss. The information provided in this commentary is for informational purposes only and is not a solicitation to buy and/or sell. Investors must consider the investment objectives, risks, charges and expenses of any investment carefully before investing. Avisen Wealth Management (Member FINRA/SIPC) does not provide tax or legal advice. Please consult your accountant &/or legal counsel for guidance.