Highlights:
Jobs Galore: January saw a huge jump in jobs, the biggest in a year.
Economy on the Up: The economy grew more than expected, showing strong signs.
Your Money Goes Further: Wages are rising, possibly outpacing inflation.
Stock Market Scoop: The stock market had a positive start, with some sectors outperforming others.
Interest Rate Puzzle: Despite high rates, the economy's holding up. But what's next?
Financial Strategies:
Home Buying/Selling: Consider reigniting paused home purchases or sales if mortgage rates drop.
Investment Reassessment: Reevaluate your investments in light of changing interest rates.
Debt Reduction: Develop a plan to tackle high-interest debts, particularly credit card balances.
Diversify Investments: Ensure your portfolio is diversified to mitigate risks amidst economic uncertainties.
January Recap and February Outlook
There's an old saying about the stock market: how things go in January might just predict the whole year. This year, that saying is a bit tricky when it comes to navigating the financial shifts. The stock market, especially the S&P 500, started off strong. But getting to that point wasn't smooth sailing. People were hoping for lower interest rates come March, but instead, we got a mix of really good and somewhat worrying news about the economy.
The good news? The economy's growing well, and prices aren't rising as fast as before. This made some smart folks think maybe we've avoided a big economic crash, landing nice and easy or even catching a second wind.
Reflecting on Early Financial Shifts
But 2023 threw us some curveballs. Despite all the ups and downs, people kept spending, not many were out of work, paychecks got a bit bigger, and somehow, prices started to chill out.
The head of the Federal Reserve, Mr. Powell, took a lot of heat for waiting so long to bump up interest rates after the pandemic, thinking that the rise in prices wouldn't last. But when he finally did act, it was a big move. Now, it seems like the economy's strong comeback might have given us room to tighten the belt without spiraling into a downturn. Did Powell pull off a magic trick with his money moves, or did he just get lucky?
We're still waiting to see how it all plays out. Everyday folks are the real drivers of the economy, and there are signs that the cost of living is starting to pinch a bit more than before, hinting at the ongoing financial shifts we're navigating through.
What is the Data Saying?
The good news just keeps coming from all corners: the economy's growing, people are spending, paychecks are getting fatter, fewer folks are out of work, and more jobs are popping up everywhere. It's like we've dodged a big, scary recession even though borrowing money has gotten pricier and prices were climbing (though they're starting to cool off a bit now).
So, what's the secret sauce? Well, it turns out everyone's been working smarter and harder. Throughout 2023, workers have been churning out more work than before, which helps keep things affordable and gives the Federal Reserve (the Fed) a hand in keeping prices from going wild.
Navigating Beginning of the Year Financial Shifts
But here's the million-dollar question: can we keep this productivity party going, especially as things start to get back to normal? Some folks think the next big thing is AI, which could keep us on this productivity high. But the big boss at the Fed, Chairman Powell, isn't quite convinced this is going to help us right away.
And what about interest rates, the cost of borrowing money? The Fed's got a meeting coming up to talk about this, and they've got their eyes on a worrying trend: more people are falling behind on their credit card and car loan payments because of these high rates. It's a sign that not everyone's sailing smoothly through these financial shifts.
Chart of the Month: Productivity Increases Are Helping Lower Inflation
Source: (U.S. Bureau of Labor Statistics)
Equity Markets in January
The S&P 500 was up 1.59%
The Dow Jones Industrial Average gained 1.22%
The S&P Mid-Cap 400 fell 1.77%
The S&P Small-Cap 600 was down 4.03%
Source: S&P Global. All performance as of January 31, 2023
Equity markets as measured by the S&P 500 posted six new closing highs during the month, after breaking through 4,800. Five of the eleven sectors gained, with Communication Services in the lead, up 4.84% for the month. Real Estate was the laggard, down 4.79%. The Magnificent 7 accounted for 45% of January return as they continued to gain, despite being expected to decline. Earnings have been stronger than expected, with almost half of companies reporting.
Bond Markets
The 10-year U.S. Treasury ended the month at a yield of 3.93%, up from 3.88% the prior month. The 30-year U.S. Treasury ended December at 4.17%, up from 4.04%. The Bloomberg U.S. Aggregate Bond Index returned -0.27%.
The Smart Investor
The year is underway, tax season is in full swing, and high interest rates are holding steady for now. But we are definitely in for a regime change this year as rates head back down. Are you ready?
Good housekeeping chores include:
If mortgage rates fall, will you reactivate a stalled home purchase? How about selling your home to downsize (or upsize) in retirement?
If you moved investments to take advantage of high rates, do you need to revisit?
Consumer interest rates won’t fall as quickly as they rose – credit card rates will stay high. Do you have a plan to pay down debt?
Even though we are slowly gaining clarity on the economy, pockets of volatility will remain until there is a definite direction change on rates. Is your portfolio diversified?
Keeping your finances tracking to your goals sounds like a lot – but it’s really just a series of steps. If you have questions, we’re always here to help.
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About The Author
Alchemist Wealth is led by the expertise of Andrew J. Tudor, CFP®, RICP®, CAP® and Fred Tudor III, AFC®, MBA. Alchemist Wealth serves clients as a fiduciary specializing in providing fee-only financial planning, investment management, and retirement planning services. With over 2 decades of combined experience in financial services, Fred and Andrew bring a wealth of knowledge and personalized solutions to meet your financial goals.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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Alchemist Wealth, LLC is registered as an Investment Adviser with the State of Ohio and only provides advisory services in states where registered or otherwise exempt from registration. All information provided herein is for educational and informational purposes only and should not be viewed as investment advice. Any links to third party information or data are believed to contain accurate information at the time of publishing.
