Stocks mostly fell Friday but edged higher for the week, as traders examined the first batch of fourth quarter earnings and a pair of closely watched inflation reports. An unexpected downtick in producer price inflation provided a source of optimism, although this was largely overshadowed by a jump in consumer price index (CPI) from 3.1% in November to 3.4% in December. The markets shrugged off the higher CPI reading and for the week, the Dow Jones edged up 0.3%, while the S&P 500 gained 1.8% and the Nasdaq jumped 3.1%.
But, the impact of higher interest rates are being felt. Citigroup said it will eliminate 20,000 roles. Amazon, Google, and X have initiated a new round of layoffs. NBC News has laid off several dozen staffers, Twitch cut its workforce by 35%, Universal Music Group will lay off hundreds of employees, Xerox will lay off 15% of its workforce and the list goes on.
Will the Fed cut interest rates soon enough to prevent further increases in unemployment or is this what the Fed wanted all along?
Future Wealth’s View
The job of the Fed Chair – if it was not hard already has gotten harder. In its mission to drive down inflation, the Fed increased interest rates to the highest levels seen in many years and has now gone into pause mode with clear signs of inflation easing down to its 2% target, until the December reading that showed an unexpected spike.
US inflation looks like it will keep slowing through the rest of this year, perhaps ending 2024 near the Federal Reserve’s 2% target. The December CPI was distorted by Christmas spending. Looking beyond the Christmas effect, goods prices overall have stopped rising and some, like those for cars, are falling.
Whether the Fed cuts interest rates or not, investors would be wise to take the long term view. Last week, in our report, we had stated that the stock market provides ~10% annually. The S&P 500 over the past decade has returned 157% and the Nasdaq, in the same period of time, has returned 253%. This implies that it is fully possible that we could see S&P at ~10,000 and the Nasdaq at ~40,000 in a decade from now. The S&P 500 and Nasdaq closed on Friday at 4,783 and 14,972 respectively.
Wouldn’t it be a shame if we parked our money in cash, CDs or bonds in the meantime?