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Weekly Economic and Stock Market Commentary – January 17, 2023

Weekly Economic and Stock Market Commentary – January 17, 2023
January 17

As for the stock market specifically: The good start to the new year kept on moving into the second week of the year. Let’s hope the first 2 weeks bode well for the rest of the year.

What we did see last week was international investments go to the top of the six major asset classes I examine. This represents a stark change from the past few years. While it is early in the year, we also see the technology stocks coming back into favor, but not in a statistically valid amount. As always, I will keep a sharp eye.

This week begins the common ritual we all have come to know (and maybe hate) – “our friends in Washington” going through the charade of arguing about the nation’s debt limit.

While I usually don’t make predictions in this space, I believe it is safe to predict that the “Spending party” will win. Of course, we all know that “the other party” is the spending party, and the party for which we cast the majority of our respective votes is the “responsible” party.

The bullish percent risk indicators moved up sufficiently last week to change my recommendation to WEALTH ACCUMULATION mode.

Remember, X’s mean OFFENSE or wealth accumulation, while O’s mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of January 13, 2023 (Courtesy Dorsey, Wright, and Associates).

January 17
On a general note:

The Department of Labor announced the December Consumer Price Index. The good news is that prices rose “only” 6.5% compared to December 2021. That marked the sixth consecutive month of inflation slowing. The better news is that there was an increase of 0.1% from November to December.

At this point, I am more convinced that the inflation cycle we saw from the middle to 2021 to the middle of 2022, and the subsequent reduction of inflationary pressure is due to the base effect. Prices were depressed for much of 2021. They increased rapidly from the end of 2021 through the middle of 2022, and then increased slowly.

In English, the big jump already occurred, and now we see “normal” price increases.

The bad news is that we continue to see wage growth come in under the inflation rate. The Labor Department announced average hourly earnings rose 4.8% during 2022.

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