Are We In A Recession?Dec 19, 2022
Every Friday we host a live discussion at 12pm EST.
This gives you the opportunity to personally ask us any questions you have on the markets, the economy, crypto, and more!
Here are the 4 key things we went over for this week:
Why the cooler CPI was really encouraging
What Jerome Powell's remarks about rates in 2023 mean for the markets
More of our 2023 outlook for stocks and crypto
How to weather an extended bear period
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Meanwhile, instead of a full transcript, here's a more compact summary of what went down last week and what we're looking forward to in the week ahead.
If you want the full version, just listen to the audio recording!
Last week was all about the 1-2 punch of a very positive CPI print followed by VERY hawkish remarks from Jerome Powell the next day.
While the CPI was a massive step in the right direction, the CPI is only important in how it guides Fed policy.
Jerome Powell is the real boss here -- and his raising the Fed's terminal rate to ~5% and essentially committing to raising rates (albeit more slowly) throughout all of 2023 was enough to send the market into a tailspin.
While markets are flattish, Powell and the Fed have essentially set the expectation that they'll push the US into a recession in order to get the labor market and demand under control while supply issues continue to resolve themselves.
It's a cold end to the year here in the markets, and the Fed sure looks like it'll keep things icy well into 2023.
There's a lot more detail to comb through, so let's dive into what you need to know for the week ahead 👇
The CPI Was Really Good:
Inflation came in at 7.1% YoY this CPI print. That's massive because the market was expecting something more in the 7.3% range, and it demonstrates that supply chains are resolving a lot of the issues they've had since 2020.
Inflation is on a flat-to-downtrend, but still moving very slowly in the right direction.
Remember: the Fed wants us to be at 2% inflation every year, so 7.1% is still more than 3x worse than we're hoping to see.
Regardless, we're seeing energy prices fall hard enough to keep inflation under control, while food prices haven't risen enough to make up a big difference. A huge driver of keeping inflation high is rent, which is expected to fall a lot over the next 6 months.
All in all, inflation is headed in the right direction, but slowly. But none of that matters if the Fed looks at the CPI and decides to keep raising rates for longer anyway.
The Fed Sent a Chill Over the Market:
Before the FOMC meeting last Wednesday, we were anticipating great news in the form of the Fed raising rates only 50 basis points this month -- much less than the 75 we've been dealing with for the last quarter.
And while we got that great news, almost immediately after, Jerome Powell gave remarks that sent the market into a tailspin.
Basically, the Fed upped the amount it would finally raise rates to (the terminal rate). We were expecting interest rates to cap somewhere in the 4% range -- but the Fed intends to go all the way up to 5.1%.
Even worse, rather than rate increases peaking sometime in the first half of 2023, Jerome Powell strongly indicated that interest rates would keep going up throughout all of 2023.
The stock market is strongly forward-looking, so the thought of corporate earnings and profits going through an entire additional year of pain was enough to spark a selloff.
The major thing we'll be watching this week is if this was an overreaction and if the market stabilizes or even recovers a little bit after last week's mini-crash.
After that, we'll be watching every FOMC meeting from here on out hoping for any sign the Fed is softening its stance.
Any indication that the Fed will actually lower the terminal rate will be a gigantic signal for the market -- but it appears increasingly unlikely.
Check out the audio recording to get our full outlook!
Wrapping this Up:
2022 was a whole year of pain for the market and it looks like 2023 will start off being a lot of the same.
The market downturn was finally enough to drive Bitcoin below $17k, taking the rest of crypto with it.
We're in an extended crypto winter for sure, and investors will have to rely on finding individual winners amongst industries if we're hoping for gains during the next 6 months.
We'll keep a close eye on retail, labor, and tech this week as these threads develop.