The Fed has Spoken
What is it?
Last Wednesday the U.S. Federal Reserve announced another interest rate hike, this time by 0.25%.*
“The key quote from Fed Chair Powell ‘We can now say, for the first time, that the disinflationary process has started.’ Disinflation means prices rise at a slower pace.”*
“What the Fed has hoped to achieve is a “soft landing” in which economic growth slows and inflation comes down, but mass layoffs and a recession are avoided. ‘I think most forecasters would say that unemployment will probably rise a bit’ from its current level of 3.5%, Powell said Wednesday. ‘I continue to think that there’s a path to getting inflation back down to 2% without a really significant economic impact. I think many forecasters would say it’s not the most likely outcome, but I would say there’s a chance of it.’”*
Why does it matter?
“When the closing bell rang on Wall Street, the tech-heavy Nasdaq was up 2%.”*
Markets were pretty resilient coming into the week and continued higher to finish the trading day after the announcement was made. However, the markets are coming up to a price level of resistance that may be difficult to break through. Stock prices may reverse on a short term basis to the downside. However, as things change we may begin to add more exposure to capture a possible move to the upside.
Blitz Index Update
What is it?
The Blitz index is a tool we use to better understand the market environment. We took the idea from legendary investor Martin Zweig, and updated it for recent times. It takes into account interest rates, actions by the Federal Reserve, consumer installment debt, and stock performance. The last few months the Blitz Index has scored either zero or two, each suggesting a 0% investment in the markets.
Why does it matter?
The Blitz Index score is unchanged to start February. Even though stocks have made a recent move up, it was not substantial enough to raise the Blitz Index score above 0/10. The other factors are still bearish. Those all have something to do with credit or debt. The Fed is slowing the economy, with interest rates rising and consumer debt increasing. While wages have increased, they have not kept up with inflation. Realistically wages are down compared to what people have to pay for goods and services. That is a big reason for debt being taken on for people to afford their expenses. An increase in consumer installment debt tends to have a negative impact on stocks, so we are not adding too much risk exposure at this time.
Other articles we found interesting this week:
Biggest winners and losers from the Fed’s interest rate hike
Adani: How the billionaire’s empire lost $100bn in days
Tech leads post-Fed rally, heavyweight earnings loom
Current 401(k) portfolio
Our last 401(k) portfolio reallocation: 5/19/2022.
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The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach.
Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
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Sources:
*Myles Udland. “The word that made stocks fall in love with the Fed”. 2/1/2023. https://finance.yahoo.com/news/stocks-love-fed-powell-disinflation-morning-brief-110013322.html
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