Market Commentary January 16, 2024

January 16, 2024

The Markets

Is inflation retreating?

Last week, we received a lot of information about inflation. Some seemed to support the idea that inflation was sticky, meaning it wasn’t moving lower, while other data suggested inflation was in retreat. Here’s what we learned:

Headline inflation, as measured by the Consumer Price Index, suggested inflation was headed in the wrong direction last month – higher. It showed prices rising more than expected (0.3 percent, month-to-month) in December 2023. In November, prices rose less (0.1 percent, month-to-month).
Core inflation, which excludes volatile food and energy prices, showed inflation was steady. Prices rose by the same amount (0.3 percent, month-to-month) in November and December.
Producer prices are the prices producers received for goods and services. Last week, the Producer Price Index showed inflation was headed in the right direction – lower. Producer prices fell (-0.1 percent, month-to-month) in November and December.
Conflict in the Middle East could stoke inflation by sending the prices of oil and shipping higher.

The Federal Reserve (Fed) has been working to bring inflation down since March of 2022. Over that time, it has lifted the federal funds rate from zero to 0.25 percent to 5.25 percent to 5.50 percent, and inflation has dropped from a peak of 8.9 percent in June 2022 to 3.4 percent in December 2023. The Fed’s goal is to lower inflation to two percent.

Markets are keeping a close eye on the Fed’s success, because they want to see rates move lower. Lower rates put more money in the pockets of businesses and consumers, which supports economic growth and higher stock prices.

Last week, few investors expected the Fed to begin lowering the federal funds rate this month; however, about three-fourths of them anticipated rates would begin to drop in March, according to data from the CME FedWatch Tool.

Major U.S. stock indices finished the week higher. Yields on most maturities of Treasuries moved lower from last Friday to this Friday.

Data as of 1/12/24	1-Week	YTD	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 Index	0.5%	0.3%	21.6%	9.9%	14.8%	12.0%
Vanguard Total Intl Index (Foreign Stocks)	0.6	-1.1	7.3	0.3	6.2	4.0
Total Bond Market (U.S. Dollar Bonds)	1.0	-0.1	2.1	-3.1	1.0	1.7
Gold (per ounce)	0.0	-1.1	9.2	3.7	9.7	5.1
Bloomberg Commodity Index	-0.7	-0.7	-11.7	6.7	4.2	-2.3

S&P 500, Vanguard Total International Stock Index, Vanguard Total Bond Market Index, Gold, and Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized. Sources: Yahoo! Finance; MarketWatch; morningstar.com; djindexes.com; London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

WHAT DO YOU KNOW ABOUT RISING PRICES? When it comes to inflation, the United States is doing better than many countries around the world. In the U.S., prices were up 3.4 percent in 2023. In Argentina, prices rose 25.5 percent in December and were up 211 percent for the full year. See what you know about global inflation by taking this brief quiz.

Since the 1950s, the highest U.S. inflation rate was 14.6 percent. In what year, did inflation rise that high?
1. 1951
2. 1974
3. 1980
4. 2022

Hyperinflation occurs when prices rise so fast that the cost of a cup of coffee could double from one morning to the next. Hyperinflation tends to result from wars and poor central bank policy decisions. Which of these places experienced a monthly inflation rate of 79,600,000,000 percent (causing prices to double about every 25 hours)?
1. Zimbabwe
2. Yugoslavia
3. Germany
4. Greece

Companies sometimes try to hide rising costs by holding prices steady while making packages or serving sizes smaller. Consumers pay the same price and receive less for their money. What is this practice called?
1. Miniaturization
2. Shrinkflation
3. Downsizing
4. Camouflage sales

In the United States, the price of eggs more than doubled from 2022 to 2023. Which of the following caused the eggs to become more expensive?
1. Omelets were in high demand.
2. 1 million people became vegetarians.
3. An outbreak of the bird flu killed 5 million egg-laying hens.
4. Videos of parents cracking eggs on their children’s heads became popular on social media.

Weekly Focus – Think About It

“How much good inside a day? Depends how good you live ’em. How much love inside a friend? Depends how much you give ’em.”

—Shel Silverstein, A Light in The Attic

Answers: 1) c; 2) a; 3) b; 4) c

Best regards,

Waterford Advisors

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* These views are those of Carson Coaching, not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.

* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.

* Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.

* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.

* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

* Asset allocation does not ensure a profit or protect against a loss.

* Consult your financial professional before making any investment decision.

Sources:

https://www.bls.gov/news.release/cpi.nr0.htm

https://www.bls.gov/news.release/ppi.nr0.htm

https://abcnews.go.com/Business/us-attack-yemen-means-oil-prices-inflation/story?id=106320536

https://www.newyorkfed.org/markets/reference-rates/effr

https://fred.stlouisfed.org/series/CPIAUCSL#0 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/01-15-24_FRED%20Data_5.pdf)

https://www.investopedia.com/articles/stocks/09/how-interest-rates-affect-markets.asp

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/01-15-24_CME%20Group_7.pdf)

https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/01-15-24_Barrons_Data_8.pdf)

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202401