Markets had their best January since 2019, and the upward momentum has spilled into a strong start to February thanks to the dovish Fed last week.

Overall, the U.S. economy grew at an annual rate of 2.1% in 2022. It’s a pretty modest number, but if you consider that growth was negative in the first six months, the fact that we managed to get above 2% for the year is pretty remarkable.

Year-over-year producer prices also declined, dropping from 8.0% in October to 7.4% in November, then 6.8% in December. This is great news and clearly where we want to see inflation heading.

We rounded the corner into a new year, and stocks ended the first full week of 2023 on a high note, with each of the three major markets up more than 2% on Friday.

In typical Dr. Jekyll-Mr. Hyde fashion, Federal Reserve Chair Jerome Powell first gave markets hope that after the Fed raised rates at its final meeting of 2022, they might pause to watch what a 4.25% Fed Funds rate would do to inflation and the economy. Predictably, markets soared on the possibility of a pause on rate increases. Then — just as suddenly — he stepped up to the microphone following last week’s meeting and said the Fed still isn’t done.

Everyone seems to believe we are on the brink of a recession, and the debate is about when it will start, how long it will last, and how severe it will be. Anyone who works in any sort of forecasting knows these three pieces of information are vital to formulating a forecast, and right now, we don’t have answers to any of these questions.

While people were on the move in one of the busiest travel seasons in recent memory, Wall Street was pretty quiet (in a good way). Volumes are typically thinner during these short trading weeks, and Thanksgiving week is notoriously the slowest of weeks, rivaled only by the week between Christmas and New Year’s.

After a strong showing the previous week, the major domestic equities gave back most of the prior week’s gains and closed slightly lower last week.

The Federal Reserve met last week and raised the federal funds rate another 75 basis points (0.75%) to a range of 3.75%-4.00%. This really wasn’t a surprise; the markets pretty much expected the fourth consecutive increase of 75 basis points. (It’s the sixth move upward in 2022.)

The sad truth remains that we’ve had nearly zero growth this year, coupled with extremely high inflation exacerbated by high energy costs. At the same time, interest rates are moving steadily upward and adding to the misery. It’s not exactly a recipe for a robust and healthy economy, and we don’t need to see two or three quarters of negative growth to confirm we are in a recession (or, at minimum, a stagflationary environment)

The market tanked on the CPI announcement at first, then rocketed back up. The Dow went on a wild swing over 1,400 points; when the smoke cleared, the Dow was up over 800 points and nearly 3% for the day. But by Friday, rising rate fears again gripped the markets and the 10-year Treasury rose above 4%. Both the S&P 500 and the Nasdaq ended down for the week, with the Dow squeaking out a gain.

Inflation isn’t going anywhere fast: CPI came in at 8.2% in September, down just barely from 8.3% last month. The market’s initial response was dismay, dropping significantly before allying at mid‐day.

Markets kept sliding downward last week, as Hurricane Ian battered Florida and the Nord Stream pipelines sprung leaks. The human and economic impact from the hurricane on Florida will be significant, but we don’t know the full effects. Suffice it to say that it will take a while for the state to recover.

Hurricane Ian barreled through Florida this week, leaving a wide swath of destruction in its wake. A natural disaster of this magnitude is a negative to markets, and it will still be several days before we see how extensive the fallout will be. It could also take some time to sort out the hurricane’s economic ramifications, including whether they will be short-term and specific to Florida or carry long-term effects for the entire country. Get our thoughts on what the data is saying.

Stocks were bashed around last week, as concerns about a looming recession and economic slowdown combined with fear the Fed will go too far. U.S. equities are now at their mid-June lows. The Fed will use the job market to gauge if it needs to hold off additional hikes. The defining event of the week was the consumer price index (CPI) report. The CPI numbers for August came in above expectations and dimmed hopes the economy had moved beyond “peak inflation.”

The defining event of the week was the consumer price index (CPI) report. The CPI numbers for August came in above expectations and dimmed hopes the economy had moved beyond “peak inflation.”

Last week was up and down as the markets focused on a shred of positive comments from Federal Reserve Vice Chair Lael Brainard on Wednesday. Although she affirmed the Fed’s commitment to lowering inflation, she said at some point the risks between raising rates and damaging the economy would balance out.

Markets started the week with jitters as the 10-year bond rose above 3%, and the specter of a different narrative than what markets were expecting began to emerge. Those jitters seemed to become full-blown disappointment following Chairman Powell’s comments, and markets experienced large drops for the week.

Markets were slowed quite a bit last week following the Federal Reserve’s release of minutes from its last meeting. There wasn’t anything super discouraging in them — but there also wasn’t anything overly encouraging either.