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Stocks continue climb into early December.

Stocks continue climb into early December.

December 06, 2022
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Positive interest rate comments in a speech by Fed chair Jerome Powell sent stock prices higher last week. In addition, the release of the important November jobs report continued to show a strong job market with higher wages. Although this report was positive on face value it temporarily sent stocks lower with the continued concern that a strong economy will push the Fed to raise rates higher, leading the US into a recession. It’s understandable if you find this type of logic confusing.

Investors are continuously attempting to weigh different market data to determine what data will have more impact in their investment time horizon. The overall U.S. economy is still strong and this can be seen in the good jobs report, third quarter GDP growth at 2.9%, and robust consumer spending. All of this would normally be great news except that this strong economy is also keeping inflation high. The issue is that the Fed wants to reign back inflation to 2% annually and unfortunately the major tool at their disposal is to raise interest rates to slow down the economy, which may lead in turn to rising unemployment and negative GDP growth (signals of a recession).

The most likely best-case scenario for 2023 is for the economy to slow down just enough to tame inflation but not enough to cause a recession. With this scenario in mind, investors would like to see economic data that is just good enough without being too strong or too weak – the goldilocks scenario. Currently, this type of data keeps the stock market rally going upwards, whereas really negative or really positive data tends to send the market lower. It’s possible the economic data will stay in a goldilocks scenario until inflation is under control and, supply and demand forces balance themselves. This is what the Fed is trying to accomplish but many investors don’t think they will succeed. I believe it is possible that the biggest surprise we see in 2023 will be that the Fed does succeed in a soft landing.

What else is coming (not to anyone’s surprise) in 2023? Client Annual Reviews! Each winter we have an annual review to keep up with the changes in your life, discuss your financial goals, and inform you of updates to your portfolio. Do you have any questions as you prepare your finances for the end of the year, or to get a jump start on the year to come? Ask me here.

Photograph by: Lindsay Henwood on Unsplash

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