Winning Inflation Battle

Anxiety clouded the market at the opening on Monday, and then investors caught ‘their’ balance late Tuesday, closing with gains in all indices, as the Dow Jones Industrial Average was up near 400 points, or 1.2%, while the S&P 500 posted a nice rise of 1.4% gain. The technology heavy Nasdaq Composite jumped 1.2%, with the ‘big boys’ awakening. As many analysts suggested it appeared traders and investors were ‘back-to-work’ looking at earnings reports in several hot sectors, pushing aside the ever-present inflation debacle, and China’s Covid-19 infections. Also, the apparent relaxation of the Federal Reserve’s loosening of the tightening rate of 0.75 percent. December’s projected rate increase could be 0.50%, a reduction induced by the slight downward trend of the CPI. Economists and strategists are suggesting that Mr. Powell will ‘cut-it-back’ in December, and in future months, if the ‘signals’ are positive. Wednesday’s market finished higher after a volatile session which saw the indexes hit peaks and valleys. The Dow Jones Industrial Average finished at 34,191, up 96 points, and the S&P 500 gained 0.59%, to close at 4027. The Nasdaq Composite was up 0.99% ending at 11,285. All week the Bond market was extremely active, garning significant infusions from investors and traders anxious to reallocate capital from the stock market to an attractive bond market and a safe haven in these troubled inflationary times. Midweek had the 10-year Treasury rate down 0.7% at 3.875% after three successive days of gains. The bond market reacts directly and quickly to actions taken by the Federal Reserve. As stocks gained and bonds fell Wednesday, investors and traders seemed more comfortable accepting the Fed’s course. Commenting on the Fed’s directives, Greg Faranello of AmeriVet Securities said, “It’s largely as expected. I think the Fed is saying they’re going to slow the pace. It’s about the terminal rate. And I generally don’t think they know exactly where the terminal rate is going to be. They’ll notch up another 50 (basis) points in December, and we’ll see how the data goes in 2023.”

Hurting Home Sales…Mortgage rates are having a disastrous effect on new home sales and existing home sales as sales have dropped for the ninth straight month, falling 5.9% in October. According to the National Association of Realtors, existing home sales are down 28.4% from a year earlier (2021). The Federal Reserve’s tightening increases to reduce the CPI have had severe effects on the housing market, so much so that with rates at all time highs, present owners are reluctant to give up their low rates to sell their properties, a majority of which are paying a low interest rate below 4%. (a paradox when on the other hand, every effort is being made to significantly bring inflation down, housing suffers) As housing inventory is nearly non-existent, and sky-high rates in the 6% to 7% range, buyers are few and far between. Lawrence Yun, NAR’s chief economist comments, “More potential home buyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher.” The current interest rate according to Freddy-Mac is 6.6%, down from 7.08% a week ago, up 3.1% from a year ago. As Mr. Powell has reiterated several times, he is expected to stay-the-course, and that could mean future rate increases in the months to come.


Howard Marks, Co-Founder Oaktree Capital Group, Barron’s “A year ago the outlook was considered flawless and I think we’re going to reach a point where they consider it hopeless. And that’s when you get the big buys.”

Marcus Sotitriou, an analyst at digital asset broker GlobalBlock, Barron’s “Some bargain hunters stepped in, betting on Bitcoin as a classic distressed asset play. Many Bitcoin whales have chosen this time of panic to accumulate, as the number of addresses with more than 10,000 Bitcoin exploded over the past week or so.”

Eswar Prasad, Cornell University economist, and a leading digital asset expert. Barron’s “We knew crypto had a highly unstable value, and now we know the platforms for trading and storing them are unreliable. Even the basic requirement that assets can be kept securely is not met by crypto.”

David Kelly, chief global strategist at J.P.Morgan Asset Management, Barron’s “Bonds are back, 60/40 is back, and across the whole spectrum of fixed income you can now get a decent return and a decent income,” says Mr. Kelly. “If inflation is now flat or falling, then bonds will resume their traditional diversification role” in a portfolio.