Don’t Worry, Be Happy as the Holidays approach!

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The big news this week was the decline in inflation numbers:  Inflation was flat in October from the prior month, core CPI hits two-year low

The annual inflation rate measured 4% and the monthly increase was .2%, the lowest increase since September 2021. Markets reacted with a steep drop in interest rates as well as the largest gain for averages this year.  Also, any anticipated rate increases from the Fed for the last meeting of the year were taken off the table. Stock market averages are still flirting with very high historical valuations but with interest rates falling the historical valuations look less bad. Overseas stocks still remain less expensive on a historical basis.  In addition, 30-year mortgage rates fell again this week.  Encouraging signs wouldn’t you say? The housing market is still stagnant although house prices are still too high.  There are some concerns about holiday shopping as consumer debt is rising as well as some evidence consumer spending might be slowing down. Walmart forecast added to this concern today.  

By the way, Congress passed with the Senate and Biden will sign a budget extension called a CR or continuing resolution pushing out any budget standoff until next year.  This gives the Congress an opportunity to pass separate budgets for each cabinet department.   We will see how that goes.  In the meantime, the APEC conference in SF, besides all the demonstrations, seem to be positive in regard to our relationship with China.  

Small cap stock performance has been lagging year to date although the past month has been very good for these same market asset classes.  These smaller companies are more sensitive to interest rates, and they have a great deal of floating rate debt that becomes more expensive as interest rates have risen.  With markets determining that more interest rate increases are off the table, these stocks have been rallying.  As inflation has declined the Fed has maintained an aggressive stance stating that there are positive signs for inflation decreasing but the Fed is not convinced their goal of 2% has been achieved.  

A Bankrate survey this week revealed that Americans are not feeling happy about the economy despite all the good news.  This confirms a Washington Post survey with the same results.  This defies reality in terms of the economy.  From The Atlantic:  the actual performance of the U.S. economy, which grew at an annual rate of 4.9 percent in the most recent quarter, and which has seen unemployment holding below 4 percent for more than 18 months.  Most Americans Are Better Off - The Atlantic

More from the Atlantic article and results of a regular 3-year survey conducted for the Fed “The survey provides an in-depth analysis of the financial condition of American households, conducted for the Fed by the National Opinion Research Center at the University of Chicago. Published every three years, it’s the proverbial gold standard of household research. The latest survey looked at Americans’ net worth as of mid-to-late 2022 and Americans’ income in 2021, comparing them with equivalent data from three years earlier. It found that despite the severe disruption to the economy caused by the pandemic and the recovery from it, Americans across the spectrum saw their incomes and wealth rise over the survey period.

The rise in median household net worth was the most notable improvement: It jumped by 37 percent from 2019 to 2022, rising to $192,000. (All numbers are adjusted for inflation.) Americans in every income bracket saw substantial gains, with the biggest gains registered by people in the middle and upper-middle brackets, which suggests that a slight narrowing of wealth inequality occurred during this time. In particular, Black and Latino households saw their median net worth rise faster than white households did—though the racial wealth gap is so wide that it narrowed only slightly as a result of this change.”


So Don’t Worry, Be Happy as the Holidays approach!



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