Trends vs. Reality

Jobs

As we look forward to 2024, we also want to reflect on 2023. We came into this year with many economists calling for a recession and a significant slowdown in jobs. Those economists have been wrong, as the job market has stayed strong throughout the year. Last week, the jobs report showed that the US economy added another solid month of job growth, adding 199,000 jobs in November, and the unemployment rate fell to 3.7%, which is much better than what economists expected. Job gains occurred in health care and government, with a meaningful increase in manufacturing, which got a boost from workers returning from a labor strike. We are watching the loss of retail jobs because it’s no secret that technology and e-commerce play a role in those job losses. One theme we will observe in 2024 is the impact technology and artificial intelligence will have on the economy and markets next year. So, it’s great to see a strong jobs report, but as we’ve seen throughout the year, strong economic reports have kept the Fed in the spotlight to see what they will say about keeping rates higher for longer. We celebrated the strong jobs report last week, but there is a concern that it will keep the Federal Reserve in the picture and give them options to continue their fight to slow down the economy. We will be keeping an eye on this as we head into 2024.

The Fed

Good economic data puts the Federal Reserve in a box, and this week, we will get reports on CPI, inflation, and the Fed’s decision on Wednesday. It’s widely expected that the Fed will hold rates where they are. What is interesting to see is what the market has been doing while the Fed has been meeting. From the Fed’s September meeting to the meeting in November, the 10-year treasury moved from 4.35% to 4.77%. The Fed talked in their meeting about how the market had tightened economic conditions without them having to raise rates. Interest rates went up and tightened economic conditions, which is what the Fed wants to do to bring inflation down. Since the November meeting, the 10-year treasury has gone from 4.7% to 4.14%. The market has loosened economic conditions and set the stage for what could be higher inflation, which is against what the Fed would like. Reports say that the market anticipates the Fed cutting rates sometime next year. However, that will be hard for them to do if inflation remains above the 2% target. We’re currently at a high end of 5.5%. Inflation is expected to be somewhere between 3%-3.9% this week, which is lower and on the correct trend, but in reality, it’s not at the preferred 2%. We’re big fans of the free market and expect the market to be right most times, but the market is extremely wrong when predicting what Jerome Powell will do. After the Fed’s December meeting last year, the market expected the Fed funds rate to be 4.3% in December 2023. Today, the Fed funds rate is at 5.5%. The market has consistently expected the Fed to stop hiking rates and start cutting rates. The market has consistently been wrong since the Federal Reserve finally realized that inflation was no longer transitory. They had to do something and stop it. This is the market using optimism over experience to project where the Fed will be. No history shows us that Jerome Powell will cut rates in the face of higher inflation and strong jobs. It’s hard to see a world where rates are coming down without the economy weakening at some point. The trends are conflicting right now, so that’s what we’re watching closely. The Fed will speak this week and maybe push the market back on the right side.

 

 

Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Chief Investment Officer
Wealth Consultant
Email Trey Booth here

Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.

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