Month-on-month inflation reports and the Federal Reserve’s responses won’t fixate investors as a new report on U.S. inflation reveals the annual rate of price increases has slowed to 6.4% in January following a decline to 6.5% in December. More broadly, inflation has cooled from a 40-year high of 9.1% in June 2022.
It’s slightly higher than most analysts had expected, but it’s nothing too dramatic. All other reports were in line with expectations. It should also be noted that different calculation metrics were used this month.
There has been a shift as markets are now betting on a longer period of higher interest rates as they begin to take heed of the message from U.S. Federal Reserve officials that there’s still a way to cool inflation in the face of a robust labor market.
The tight labor market is a headache for the Fed, as it contributes to strong wage growth. However, Fed Chair Powell made clear last week that embedded inflation (caused by wage growth) is not yet a problem.
Despite the higher-than-expected inflation print, it’s clear to investors that we’re far closer to the home run now.
I think investors will, sensibly, be prepared to look through any near-term squalls on inflation and interest rate news.
Instead, rightly, they will be focused more on earnings. Fourth-quarter 2022 earnings have fallen from a year ago, now a decline in the first quarter of 2023 would push the S&P 500 into an earnings recession. This will be more front and center in investors’ minds.
They are less fixated on the month-on-month inflation reports and the Federal Reserve’s response.
Inflation seems to have peaked, and investors are looking to the future, not in the rear-view mirror.
As the economic cycle moves ahead, and economies readjust, there will be big winners and big losers — it’s about being invested in the right companies, those which can consistently maintain or steadily grow margin, as well as diversification across sectors, asset classes and regions.
As we’re seeing, some companies are struggling to maintain margin and are failing to report as had been expected. This is a now a bigger deal for investors looking to build wealth than individual inflation reports.
London-born Nigel Green is founder and CEO of deVere Group. Following in his father’s footstep, he entered the financial services industry as a young adult. After working in the sector for 15 years in London, he subsequently spent several years operating within the international space, before launching deVere in 2002 with a single office in Hong Kong. Today, deVere is one of the world’s largest independent financial advisory organizations, doing business in 100 countries and with more than $12bn under advisement. It specializes global financial solutions to international, local mass affluent, and high-net-worth clients. In early 2017, it was announced that deVere would launch its own private bank. In addition, deVere also confirmed it has received its own investment banking license.
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