Market Update: January 18th, 2023 - Interesting Day

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

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Hello, everybody, welcome to Wednesday, the S&P 500 was down almost 1.6%. Today, if you believe that the inflationary environment needs to get better, you need to have less inflation in order for the stock market to really take off. Today was a good day, we saw the persuit producer price index come out today, it's a measurement of wholesale inflation, it was very good. It had dropped quite a bit. And in fact, it hasn't dropped that much. You know, since the bad times of the pandemic back in early 2020, we saw consumer sales come down and again, normally, that would be a bad thing. But when you're trying to fight inflation, consumers can be one of the main drivers and the Federal Reserve has been trying to bring down consumer purchases with their rate increases. And we had some evidence of that today, which is not a bad thing. And 10,000 people were announced as a layoff for Microsoft. And again, that's a bad thing in normal times, but in a high inflationary environment with a tight labor market, softening up that labor market actually helps the fight against inflation. You know, we had a Cryptocurrency Firm today talk about the possibility of filing for bankruptcy, we'll see what happens there. But again, Cryptocurrency is one of those things that grew to a $3 trillion size, that's a lot of spending money that can come out and stimulate the economy. And now it shrunk back down quite a bit. Again, normally, that's kind of a bad thing in the overall scheme of things. But in terms of fighting inflation, that's a good thing. So in response to all of these, you know, inflationary scenarios, we saw really good things reflected in the bond market, which is very good at predicting where inflation might go. So the two year Treasury yield drops, again, the 10 year Treasury yield dropped, we saw the futures Fed funds rate market, which is a guessing mechanism for where the Fed funds rate will go, come down a little bit and showing some softness, you know, in terms of decreases possibly in the Fed funds rate in the second half of the year. So, the market was kind of struggling along with that, but then a couple of Fed Reserve governors came out and spoke. And they were very aggressive talking about raising rates much higher than what was expected by the futures market, keeping them up all the way through the year, even though the futures market, you know, is talking about, you know, some softness and bringing down the Fed funds rate some at the end of the year. Now, the Federal Reserve has a vested interest in trying to bring the stock market down here, because the more the stock market goes up, the more financial conditions ease. And so we've kind of been a little bit careful here with spending too much time thinking about, you know, what the Federal Reserve, you know, says, let's look at what they do, because you know, there's a vested interest in saying something and doing something else. And the so far the bond market in the futures market for the Fed funds rate has been more accurate than the Fed themselves in predicting what they're going to do. And so here's what I would be focusing on and we'll be focusing on is really, again, I've said this before, but I think inflation is continuing to moderate here. And the real, you know, thing to look at is recession. And so you know, we're going to have lower consumer spending in this environment, because that's what helps inflation. But it can also if it gets carried away create, you know, steep recession, which would affect earnings, which could affect the stock market......