It’s the last trading day for 2022 – which means it’s time for some ‘foolish forecasts’. The S&P 500 booked a 19.4% loss this year… its 4th worst since 1945. My foolish forecast is the lows are not yet in… however 2023 will represent opportunity.
Macro / Economy
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Powell’s Single Focus
During 2022 – the market obsessed over one thing – inflation. How high? How fast? And for how long? That concern is now largely behind us… however investor’s gaze is about to pivot from CPI worries to employment (specifically entrenched wage growth). If Powell is to be successful in winning the war against structurally entrenched inflation – he needs to bring wage growth down to 2%. Today that figure remains above 5.0%. That’s going to take time… and is the market potentially caught offside?
Is the Market Fighting the Fed?
The market and the Fed are at odds. In short, equities don’t believe what Powell is saying. The market is betting the Fed is wrong and will be cutting rates by the second half of 2023 – where the ‘dot plot’ of 5.0% is a dream. My take: choose to fight the Fed at your own peril. Typically it doesn’t work out well.