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Weekly Market Recap & Outlook

Happy MLK Day to those of your celebrating – and living these noble ideas. Let’s now take a big picture view of the economy, job market and Fed policy with regard to inflation and monetary policy. Can there be a soft landing?

Even these two paragraphs that I may further enrich for tomorrow’s extensive analysis, reveal the answer if you read them carefully.

S&P 500 continued higher Friday as consumer confidence data didn‘t disappoint – adding to soft landing hopes. Soft landing would though only happen should the unemployment claims don‘t rise too much – on the flip side, that would mean that service inflation would remain high, which is exactly what we have seen so far. It‘s a double edged sword, this tight job market – and it will remain tight. Just have a look at unemployment ratio to job openings – it‘s not really declining, and the Fed wants to see it decline, just like latest job creation is more than double the Fed‘s preferred less that 100K monthly.

So when would the troubles strike, based on what the Fed is doing? I look for continued balance sheet shrinking, and while the hikes favor 25bp for Jan FOMC, it‘s far from a done deal. 50bp is still very much an option, but I acknowledge it‘s slighly less probable than 25bp. Then 25bp more in Mar, and we have Fed funds rate at 5%, but Kashkari wants to go higher, almost to 5.50% – and should headline and especially core inflation remain sticky (these won‘t please the Fed in the months ahead), the central bank would seek to redefine its level of restrictive FFR regardless of the 2y yield telling the Fed for weeks it‘s done tightening, otherwise things in the real economy start to break.

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All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.

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