02/27/2023
Stocks pulled back as inflation data remained elevated, potentially causing the Federal Reserve to tighten more than was initially anticipated. This battle over when the Fed will pause will most likely continue throughout the first half of 2023 which, in turn, should keep a lid on stock prices. However, we believe that at some point over the next two to three quarters, investors will look past the current environment and toward one during which the Fed can be less restrictive in terms of monetary policy. Sounding like a broken record from prior weeks, we will reiterate that “after the run-up in the stock market since the beginning of 2023 some profit-taking is in order. However, we will watch to see if this transition has some legs. At the present time, a well-diversified portfolio, including some international holdings and bonds is in order. We noted last week that investors can expect perhaps a pause, but no pivot from the Fed. After the economic data referenced both below, a pivot over the near-term is certainly out of the question. Even a pause becomes less likely as is evidenced by the preponderance of economists expecting the Fed Funds Rate to now peak at 5.50% rather than 5.25%. The Open Market Committee of the Federal Reserve (FOMC) will meet again March 21-22. To us, it’s all about the Fed’s intended glide path to 2% inflation, which at the present is unknown to the public. How much of a slowdown is the Fed willing to accept to get to two percent? Answer that and you will have the slope of the glide path.
