Market comment 2023

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Stuck? September CPI showed inflation rose 3.7% from one year ago, matching August’s increase. Wall Street was hoping for 3.6%. Progress was made on core CPI, excluding energy and food. It fell to 4.1% from 4.3%. Shelter was the biggest contributor, accounting for over half the headline and 70% of the core increase.

• Shelter will come down as rents are falling but shelter in core CPI is an average over the last 12 months, instead of new contracts.
  
• Higher bond yields, strikes will also dampen the economy, doing the Fed's bidding.
  

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In a recent interview, Mr. Lynch pointed out that "We've been in an incredible bear market for two years," excluding the leading mega-cap stocks such as Apple (AAPL), Tesla (TSLA), and Nvidia (NVDA). While the S&P 500 (SPY, VOO) and Nasdaq (QQQ) are flying high (and overvalued based on a number of metrics), these returns have been driven almost exclusively by a handful of tech giants. Meanwhile, the rest of the market has largely underperformed, with many stocks still trading below their 2018 highs.

Peter Lynch Says Forget Tech Stocks, The Bargains Are Here: IWM Vs. VB | Seeking Alpha

Investors wondering whether markets can continue their torrid rally are eyeing one important factor that could boost assets: a nearly $6 trillion pile of cash on the sidelines. Soaring yields have pulled cash into money markets and other short-term instruments, as many investors chose to collect income in the ultra-safe vehicles while they awaited the outcome of the Federal Reserve’s battle against surging inflation. Total money market fund assets hit a record $5.9 trillion on Dec. 6, according to data from the Investment Company Institute. The Fed’s unexpected dovish pivot on Wednesday may have upended that calculus: If borrowing costs fall in 2024, yields will likely drop alongside them. That could push some investors to deploy cash into stocks and other risky investments, while others rush to lock in yields in longer-term bonds.

A $6 trillion cash hoard could fuel more U.S. stock gains as Fed pivots | Reuters

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The World Bank delivered sobering news this week in its latest “Global Economic Prospects” report, forecasting that global growth will continue to decline for the third straight year in 2024. At just 2.4%, worldwide expansion will mark the weakest five-year period since the early 1990s. While the US economy has so far avoided recession despite high inflation and interest rate hikes, this prolonged global slowdown spells troubling times ahead for American companies, consumers and investors. With economic growth slowing across most regions, demand for US exports is likely to take a hit. That’s especially true among major US trading partners like Europe and China, where growth is expected to continue decelerating. Weakening global demand could mean reduced overseas profits for US corporations.

Channelchek

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Putnam reiterated a point he made when talking to Benzinga in November. That inflation would be at, or below, the Fed’s target rate of 2% if the CPI data were interpreted more accurately. “The CPI measure of inflation has problems. A quarter of the headline rate comes from owner equivalent rents — which is calculated as if you rent your house to yourself and you collect the money. The statistical people then put that money in your account — even though you don’t have it — and they count it as personal income. “It’s very much an imaginary number, and if you take it out of the data, headline CPI has been under 2% for four or five months,” he said.

EXCLUSIVE: CPI Increase 'Just A Hiccup,' Says Former CME Economist: 'Inflation Is Well Under Control' (CORRECTED)

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A prolonged conflict in the Red Sea and escalating tensions across the Middle East risk having devastating effects on the global economy, reigniting inflation and disrupting energy supplies, some of the world’s leading economists warn this weekend. Before a statement expected on Monday by Rishi Sunak in the House of Commons about UK and US airstrikes on Houthi sites in Yemen, economists at the World Bank say the crisis now threatens to feed through into higher interest rates, lower growth, persistent inflation and greater geopolitical uncertainty.

Red Sea crisis could shatter hopes of global economic recovery | Middle East and north Africa | The Guardian