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Weekly Economic and Stock Market Commentary – February 6, 2023


Market Commentary

As for the stock market specifically:

Generally speaking, the bulls won the week in the investment markets, although the Dow Jones Industrial Average did have a slight decline for the week. The market appeared to move due to earnings reports, and the Federal Reserve making a modest increase in short-term interest rates.

We had a couple of notable developments on the technical front last week. First, growth stocks became favored over value stocks on a relative basis. In English, that means having a few more dollars in growth, and a few less bucks in value stocks. That stands in sharp contrast to 2022.

The next development concerns a shift in major asset classes. Last week saw US stocks overtake commodities in strength. That also suggests that inflation will ease.

Easing inflation once again is a relative term. We know from our trip to the grocery store that food prices are significantly higher than last year. That said, the rate of increase is slowing.

I want to spend some words on the SECURE 2.0 legislation that went into effect at the end of last year.

I mentioned in a prior commentary that the age for people to begin required IRA distributions increased to age 73 this year.

If you operate a business retirement plan, do not be surprised if this legislation increases the operational costs of your plan. In my opinion it appears this will come from the record keeping aspects of the plan since many of the changes reflect directly upon record keeping.

Plan sponsors also will have more decisions about plan provisions, as well as some provisions mandated.

Unfortunately, the late enactment of this legislation will prevent immediate implementation of some required provisions for 2023. Record keepers are working to get their systems in tune with the law, and will inform us when they are ready to implement the changes.

The bullish percent risk indicators had a good week. We are in WEALTH ACCUMULATION mode.

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of February 3, 2023 (Courtesy Dorsey, Wright, and Associates).

On a general note: 

The Department of Labor gave us the news that the nation added 517,000 jobs in January. This was the largest gain since July 2022, and brought the unemployment rate down to 3.4%. Average hourly earnings were 4.4% higher than January 2022, so employees are losing money after inflation factors are considered. The average hourly workweek rose to pre-pandemic levels. This number by no means is indicative of a pending recession.

Overall, this is a very strong report, but I am interested in seeing the revisions that come in the next couple of months. I won’t go into detail, but a very strong governmental report last year was revised downward by 99% well after the initial release.

The Federal Reserve met last week, and decided to raise short-term interest rates by 0.25%. This was expected by investors worldwide. The Federal Reserve now is at the stage where they are monitoring the impact of prior rate hikes instead of trying to shock the economy into a cooling off period.

The Standard & Poor’s Case-Schiller CoreLogic Home Price Index fell 0.6% in November compared to October. That was the 5th consecutive decline in resale prices. There was a gain of 7.7% when compared to November 2021. Existing home sales dropped 17.8%, but no sales rate was in the report I read. In a related report, the National Association of Realtors announced the median sales price in December was $366,900. This was a 2.3% increase from December 2021.

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