Upcoming Economic Events
Wednesday, November 9
Mortgage Activity, Wholesale Trade Sales & Inventories
Thursday, November 10
Consumer Price Index, Jobless Claims, Federal Budget Balance
Friday November 11
Veterans Day, (Fixed Income Markets Closed) Consumer Sentiment
CPI is hot--will it cool in October?
The new CPI number comes out tomorrow. Remember back in September’s report, CPI increased by 0.4%, which was much more than expected. At the time of the report, the higher CPI caught the market offsides. Obviously, the market can see that inflation is going in the wrong direction. This is a clear indication that what the Fed is doing hasn't really been working. Their goal, of course, is a target of 2% inflation year over year. We're well above 8% but the key here is how fast things are cooling off. In our opinion, the top was in June at 9.1%. So, we are coming down, it's just not coming down as fast as the Fed has hoped, giving a green light for higher rate hikes for longer. We anticipate almost five more rate hikes to a 4.5% federal funds rate next year.
As rents declined for the second straight month. According to Apartment List, rent prices fell 0.7% in October. It was the steepest monthly decline in their index history (since 2017). Rents are still up 5.7% year-over-year, but the annual pace has slowed from 18.1% Y/Y in 2021. This data is a leading indicator for rent inflation in the CPI.
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Social Security Gets a Boost
Social Security, because of this high inflation, is getting a cost-of-living adjustment for 2023 of 8.7%. This is one of the highest costs of living adjustments we've seen in the long time, but it will sure help take the sting out of all this high inflation for those of you that have turned on social security. I think it's really a step in the right direction.
Getting the most for your Dollars – Prepare for Higher Taxes
If inflation stays high and interest rates stay high, the number one biggest expense next year for the United States government is going to be the interest owed on the national debt. Usually that is not the number one most expensive thing, usually it's social security and Medicare, but the higher interest rates go, the more our government owes on that national debt. Some very tough decisions coming down the road for the leaders in our country, as far as how they're going to fund social security and how we're going to pay for this higher interest rate.
We think all roads lead to higher taxes down the road.
This is why it's so important to have a tax plan, perhaps this means doing some Roth conversions now while we're under the Trump tax codes, before taxes increase come 2026. If they do pass new legislation in 10 years, we really think tax brackets are going to go up maybe even higher than the Obama tax codes.
The more proactive we can be with tax minimization, the better off you'll be in the future. We think it's a great opportunity to look at what can you do any this year within the tax. brackets you're in and how much money will that save you over your lifetime.
October Hiring Tops Forecasts
The U.S. economy added 261,000 new jobs last month (205,000 expected), down from 315,000 jobs added in September. While labor market growth fell to a 22-month low last month, the unemployment rate rose to 3.7% from 3.5% as the unemployed ranks swelled by 306,000 to 6.1 million. At this rate the labor market is not suggesting we are in a recession.
Playing Portfolio Defense
Our portfolios are still sitting very conservatively. We don't like the way volatility is moving. We continue to see these wild swings throughout the trading day, 400 or 500 points going one way and then reversing and going 400 or 500 points the opposite direction. We think overall many companies out there are going to downgrade their forecasts going forward or just remove guidance completely. FedEx did just that about a month ago and their stock dropped 17% within a few minutes.
When will the Fed pivot? The Fed pivot means that the Fed not only stop raising interest rates, but actually starts cutting interest rates. That's the Fed pivot and we don’t think it’s happening anytime soon. The Fed's number one job is price control, and it cannot be justified with inflation well above the 2% level. We plan on keeping a conservative and cautious approach. This mean increasing our cash balances and seeking quality sectors and companies with stable cash flows.
Final Word
Under this challenging market environment, it’s important to know you have a trusted financial partner. If you know people that are out there that are getting crushed in their 401(k)s, or their advisor is not helping them navigate, not offering any proactive solutions, have them reach out to us.
We don't take those lightly; we think that's the greatest compliment. And we appreciate the many we received over the past few months. if you have any family members or friends or coworkers that are getting crushed and are worried because their advisor doesn't have a plan, or they're just doing it on their own and it's not working out so well this year, give us their contact information or give them our contact information, and we'll be glad to go through the process with them.
Thank You for Trusting Us
From all of us here at ClearPath Financial, we are humbled by your faith and trust in us. Have an amazing November. As always, if you need anything, please don’t hesitate to reach out to us.
Matthew P. Sherman
Investment Adviser Representative
ClearPath Financial, LLC., Partner of Abraham and Co. Inc.