Federal Reserve Remains Hawkish – What Now?
Yesterday afternoon we receive the last Federal Open Market Committee (FOMC) statement of 2023.
And guess what?
Nothing much changed from the November statement – and frankly, that is a little frustrating.
The market agreed, with all major averages dropping as the statement progressed.
As expected, the Fed raised rates by 50 basis points to 4.25%-4.50%, a 15-year high.
But the hawkish tone and rate projections for 2023 are what were really concerning to investors…
In today’s Market 360, we’ll review the FOMC statement and Fed Chair Jerome Powell’s remarks… and then I’ll share how you can prepare yourself next year – no matter what the Fed does next.
The Fed’s Outlook
Over the last week, we have received a slew of inflation numbers – and all signs point to inflation cooling. That’s great news.
As I mentioned earlier this week, the Labor Department announced Tuesday that the Consumer Price Index (CPI) rose less than expected in November, up 7.1% in the past 12 months. This is compared to economists’ expectations for a 7.3% year-over-year rise. And last week, the Producer Price Index (PPI) showed that wholesale prices also fell in November.
With all signs pointing toward lower inflation, many, including myself, expected a pivot from the hawkish tones we’ve been hearing from the Fed. But that didn’t happen…
In yesterday’s statement, Federal Reserve Chairman Jerome Powell said, “We think we’ll have to maintain a restrictive stance of policy for some time, historical experience cautions strongly against prematurely loosening policy.”
As reported by The Wall Street Journal:
Most officials expect making somewhat less progress on inflation next year than they had anticipated in September. They project core inflation, which excludes volatile food and energy categories, to fall from 5% on an annual basis in October to 3.5% at the end of next year. That is up from a projection of 3% in September.
Furthermore, many officials changed their economic growth outlook for next year. Some even projected declines of gross domestic product (GDP), though most see the economy expanding by 0.5% in 2023 before taking off in 2024.
As a result, the Dot Plot – which surveys all FOMC members – says they want to raise rates up to 5.1% in 2023, compared to the 4.6% target back in September. What’s interesting is the range is 70 basis points apart, which means they aren’t agreeing on what they should do.
That’s good news, folks. Jerome Powell likes a consensus. Couple this with the fact that the two-year and 10-year Treasury yields are both below 5.1%, about 4.23% and 3.44%, respectively, and the Fed should be close to being done raising rates. The Fed never fights market rates.
But the truth is, yesterday’s rate raise capped a year where the Fed raised rates at the fastest pace since the early 1980s. And it’s not what people wanted to hear…
Then this morning, retail sales numbers dropped for November – falling more than expected. (I’ll have a deeper dive into what November’s retail sales mean in tomorrow’s Market 360.)
All considered, as I write Thursday morning, markets are falling with the S&P 500 down 1.23%, and the Dow and Nasdaq down 1.03% and 1.46%, respectively. Clearly, investors are pretty cranky right now.
So, as we close out what has been a very volatile year for stocks, how can we prepare ourselves – and our portfolio – for 2023?
Prepare Your Portfolio for 2023
During Tuesday’s Early Warning Summit 2023, I sat down with my colleagues, InvestorPlace analysts Eric Fry and Luke Lango, to talk about what’s to come next year.
And we all agree – right now we have a massive market opportunity that we haven’t seen since the early 2000s dot-com crash. Once you tune out the noise, you’ll notice the U.S. economy is still humming along. Unemployment remains low, home values are stable, and new emerging technologies are changing the way we see the world…
The 2023 recovery will happen far faster than most talking heads expect.
And the fact is, general market fear has pushed valuations of certain high-potential stocks into depths we rarely see.
During the Early Warning Summit, we laid out our case… and gave listeners the opportunity to access our Power Portfolio 2023 – eight stocks hand-picked by us to outperform in the coming year.
(If you missed the Early Warning Summit, you can watch the rebroadcast here.)
Each of the Power Portfolio 2023 stocks was chosen based on our combined strategies, as well as its role in the overall portfolio. The eight stocks we introduced to readers yesterday represent a well-diversified portfolio we believe will outperform over the next 12 months, while at the same time lowering overall risk.
Our Power Portfolio 2023 stock picks represent what we feel are a once-a-decade chance to buy some stunning future winners.
For our full 2023 outlook – and to learn how to access our portfolio of eight stocks – click here.