Medicare Agent News: 2023's Dilemma

Tuesday, December 27, 2022

2023's Dilemma

By Nicholas Jasinski | Friday, December 23

Not-so Merry Markets. Stocks indexed wavered today, after this morning's personal income and expenditures report showed decelerating inflation but lower-than-expected consumer spending to kick off the holiday season.

It's the latest bit of conflicting data that has left investors with a muddled outlook going into 2023.

The core personal-consumption expenditures price index—or PCE deflator, the Federal Reserve's preferred inflation gauge—was up 0.2% in November and 4.7% from a year ago, in line with what economists had forecast. That compares with a 5% year-over-year rise in October.

The headline PCE deflator increased 0.1% in November and 5.5% year over year, matching expectations and slowing from 6.1% in the year through October. That includes food and energy prices, which rose 11.2% and 13.6%, respectively, from a year ago.

Today's report also showed that earnings for the average American were up 0.4% month over month, beating the rate of inflation. But consumers didn’t keep up with their shopping: Spending rose 0.1% in November.

The S&P 500 hovered around breakeven for much of the day, before rising into the close to finish up 0.6%, and 0.2% lower for the week. The Dow Jones Industrial Average rose 0.5% today and the Nasdaq Composite ticked up 0.2%.

Friday's trading exemplified the catch-22 that markets will face in 2023. It’s a dynamic in which good news and bad news both tend to be interpreted as bad news.

“The bulls can’t win,” wrote Edward Yardeni, president of Yardeni Research, yesterday. “If the economic indicators are too strong, the Fed will have no choice but to tighten until a recession occurs. If they are weak, then a recession might be coming sooner.”

For the bulls, it’s a narrow path to victory. Inflation needs to come down more quickly than Fed officials expect, cutting their hawkish message and lowering odds of rate hikes later into 2023. Concurrently, the slowdown in the economic data needs to be just that—a slowdown, not a decline. It’s the mythical soft-landing scenario contemplated by economists.

For now, the sum of the data doesn’t lean in one direction and the range of potential outcomes is wide.

As for the coming holiday-shortened week, it tends to be a good one for stock investors. The S&P 500 has risen between Christmas and New Year’s Eve on 73% of occasions in its 94-year history, with a median return of 0.7%, according to Dow Jones Market Data.

That could help trim the S&P 500’s 2022 loss, currently at 19.3%. There’s another historical trend in investors’ favor. When the index declines 20% or more in a calendar year, it’s been up two-thirds of the time in the next year, per Dow Jones Market Data. The following 12 months have seen a median gain of 24.3%.

A fabled soft landing could deliver those returns. But it will take some more time and volatility for the path there to become clear—or not. Enjoy the holiday reprieve.

Watch our weekly TV show on Fox Business Saturday or Sunday at 10 a.m. or 11:30 a.m. ET. This week, predictions for 2023 that defy conventional wisdom. Plus, an interview with Satori Fund founder Dan Niles on what to expect from tech.