CIO Monthly Observations - January 2023
Markets in Review
Markets fell again in December, with the S&P 500 falling -5.9% during the month, for a year-to-date drop of
-19.4%. The MSCI All Country World index lost ground as well, down -4.1% in December, extending its full year losses to -19.8%. Bonds also fell, with the Bloomberg BarCap U.S. Aggregate Bond index losing -0.45% during the month, which brought its full year losses to -13.0%.
December’s swoon erased November’s gains, as the impact of a year’s worth of Federal Reserve interest rate hikes continued to weigh on investors, but the US inflation rate slowed down and China announced plans to re- open their economy, which should provide a boost to world economic activity. Looking forward to the new year, the main factors of inflation, interest rates and economic growth will continue to affect the stock and bond markets, so it’s a process that will take time to sort itself out.
- Monthly inflation is now increasing at a much slower pace
- The Federal reserve reduced the amount of their rate increases
- China announced that they would begin re-opening their economy
News in Review
Below are some stories that caught our eye this past month. To learn more, follow the links to the full article.
The inflation rate dropped to 7.1% on annual basis, and to only 0.1% on a monthly basis, showing a trend of prices rising more slowly. In fact, that monthly price increase was the least in 15 months as gasoline and healthcare prices dropped on average, while housing costs and many other consumer goods prices increased.
In their last meeting of 2020, the Federal Reserve Bank raised interest rates by 0.5%, slowing the amount of their increases from the previous pace of 0.75% per meeting. Given that inflation is continuing to slow down and now that the Fed Funds overnight interest rate is as high as 4.5%, the FOMC presidents decided that a slower pace of rate increases was appropriate. Despite this slower pace, the Fed already raised rates seven times in 2022 and the stock market was impacted by all of those interest rate hikes. Going forward the Fed is going to need to determine how much higher to take rates – and for how long to keep them at that high level.
China announced plans to re-open their economy and the number of tickets sold for outbound flights from mainland China jumped 254% in a single week. The news should be good for global economic growth, but it also introduces new challenges as an estimated 37 million Chinese people tested positive for Covid in one day. Given the rapid increase in infections, many countries are ramping up their testing efforts for inbound travelers from China and it’s possible that new quarantines may be imposed on tourists and business travelers, in order to slow the spread.
Unfortunately, even the North Pole can’t escape inflation as the number of Santa’s that businesses tried to book at HireSanta.com jumped 125% – and that’s from pre-pandemic levels. Given the lack of people to fill in for Saint Nick, prices have risen 10-15% this year, in order to entice more people to join these ranks, allowing professional Santas to earn somewhere between $5k - $12k during the Christmas season. But becoming a Santa requires acting skills and the ability to think quickly as children ask any number of crazy questions, so it isn’t for everyone.