Happy November. As we move into the season of giving thanks, we can all feel thankful for a bit of good news about the markets. Stocks soared during October, with value stocks outperforming growth as earnings season kicked into high gear. They seem to have been buoyed by the idea that the Federal Reserve (Fed) may begin to scale back the pace of its tightening program in the months ahead. With a 75bps hike essentially guaranteed for their November meeting, the focus turns to the language used by Fed Chair Jerome Powell, stating a possible pause to evaluate the impacts of policy decisions to date.
There’s no doubt that the Fed is managing through a difficult time, and tightening appears to be the appropriate response. Fed Chair Powell certainly understands that few financial events are as devastating as high inflation over time – especially for those living on a fixed income. How the Fed has addressed 2022’s inflation has been significantly different than previous financial events. We’ve faced many challenging economic periods since 1984, and in each instance, the Fed’s reaction was to ease monetary supply or pause its money-tightening efforts. But in 2022, with inflation reaching new highs in the U.S. and showing few signs of slowing in other parts of the world, the Fed’s response has been to tighten by raising interest rates.
“Inflation” continues to be the word of the day — everywhere you turn, there’s another story about its impact. Among many industries hit hard by rising costs, manufacturers of candy products were feeling the pinch in October. Many news outlets reported that confectionary prices were 30% higher this Halloween. That wasn’t sweet news, especially if we look closely at some of our favorite candies. According to the U.S. Bureau of Labor Statistics, prices for peanut butter were nearly 9 percent higher compared to 2021. And Cocoa, chocolate’s main ingredient, also rose by more than 9 percent since December.1,2
However, while current inflationary pressures are certainly a cause for concern, some seasonal signs of hope are on the horizon. After two straight quarters of negative economic growth, the initial estimate of the third quarter’s GDP came in at a solid 2.6%, exceeding economists’ 2.3% estimate.3 The surprising economic performance was largely attributable to an increase in exports, which narrowed the trade deficit, a development that may not repeat going forward.4
Particularly encouraging was the personal consumption expenditure price index, a report used by the Fed to track inflation. It increased by 4.2%, well below the 7.3% jump from a quarter ago.5
We remain optimistic that the Fed’s strategy to tame inflation will positively impact future market conditions. In the meantime, if you have questions, please let me know. We’re always happy to hear from you.
- Washingtontimes.com, October 5, 2022
- Foxbusiness.com, October 5, 2022
- NYpost.com, January 10, 2022
- CNBC, October 27, 2022
- CNBC, October 27, 2022