INCOME AND PRICES INCREASE:  According to the U.S. Bureau of Economic Analysis (BEA), personal income increased by 0.6% last month.  The BEA’s Personal Consumption Expenditures Core Index (PCE), another inflation measure (and one watched very closely by the Fed), increased by 0.6% in January.  Over the last 12 months that index is up 4.7%.  That figure was up 4.6% last month, so that measure of inflation increased.  Anytime we get less-than-optimistic news about inflation markets will not respond well.  The Fed is trying to slow things down, and the economy is being too resilient.  All that money injected into the economy over the past couple of years is still working its way out of the economy, and the road to lower inflation is proving to be bumpy.

GOING BACKWARDS?:  U.S. stocks suffered their worst week of the year.  In this time of “it’s all about the Fed,” this week was no different.  Economic data came in, and investors assumed the data will move the Fed (or keep the Fed) toward continued interest rate rises and monetary tightening.  Reports came in last week showing that spending and income jumped in January.  The core inflation gauge, the one the Fed relies on, came in higher than most economists expected.

LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  

OTHER CENTRAL BANKS HAVE MORE WORK TO DO THAN THE U.S. FED:  If, as of 12/31/2023, you subtracted the Fed’s key interest rate from the rate of CPI (inflation), you end up with a 2.6% difference.  So the Fed feels it still has work to do.  But in Japan, the difference is 3.9%.  In Australia it is 4.2%.  The U.K. is at 7.2%.  Finally, the Eurozone comes in at 7.6%.

SALES OF NEW HOMES INCREASES, BUT STILL LOWER THAN LAST YEAR:  Sales of new single‐family houses in January 2023 were 7.2% above December’s sales (seasonally adjusted), but 19.4% lower than January of a year ago   

NEW CAR INVENTORY MAY EASE PRICES THIS SPRING:  Lack of new car inventory has been a problem since the economy re-opened after the pandemic shutdown.  Inventory is expected to record big gains by the end of March.  Consumers could see an easing up in pricing through a combination of greater availability of vehicles and increased incentives, especially when the industry gets into the spring selling season.

IS A RECESSION COMING?:  Several factors are pointing to a potential recession:

• The yield curve is inverted, which is a well-known predictor of recessions.
• Commodity prices are down.
• Manufacturing activity has been contracting recently (although this data point is a bit indecisive).
• Banks and other financial institutions are underperforming.
• Businesses have high inventory levels.
• The growth of money supply (after a ridiculously high increase) is negative.

Why might we not have a recession or a shallow one if we do?

• Consumers still have over a trillion dollars in excess cash.
• Corporate balance sheets are healthy.
• Corporate profit margins are at high levels.
• Bank balance sheets are very healthy.

(Thanks to Bob Doll, Chief Investment Officer at Crossmark Global Investments).

STONECROP WEALTH ADVISORS CORPORATE VIRTUES:  Stonecrop Wealth Advisors has adopted the following five corporate virtues:

• Servanthood,
• Curiosity,
• Calmness,
• Courage, and
• Humor.

The fourth virtue is ‘courage.’  Courage is the ability to do things that frighten us.  Fear immobilizes, courage moves us forward and gives us the bravery and determination to confront our fears and anxieties.  This plays out in a financial and investment planning firm often.  At times, good service calls us to speak difficult truth to a client, and maybe risk losing them.  We might be so fearful of short-term market volatility that we invest too conservatively.  Fear might lead a financial advisor to avoid the difficult conversations that occur with clients when account values decrease in a difficult market.  We cannot be immobilized by any of these and other difficult situations we face.  We seek the courage to serve our clients no matter the challenge.

WE’VE BEEN EXPECTING YOU!:  It seems like yesterday that I walked my daughter Molly down the aisle (it was August 2021).  Now she is a mom!  Last week, we welcomed our new granddaughter MacKenzie Gray.  I’m in love.

Have a great week!

“The two most important days in your life are the day you are born and the day you find out why.”  Mark Twain

“After all, children should not have to save up for their parents, but parents for their children.”  II Corinthians 12:14

SOURCES:
OTHER CENTRAL BANKS HAVE MORE WORK TO DO THAN THE U.S. FED: Data provided by Bob Doll, Chief Investment Officer at Crossmark Global investments at a presentation made this week
SALES OF NEW HOMES INCREASES, BUT STILL LOWER THAN LAST YEAR: census.gov/construction/nrs/pdf/newressales.pdf
INCOME AND PRICES INCREASE:  bea.gov/news/2023/personal-income-and-outlays-january-2023
NEW CAR INVENTORY MAY EASE PRICES THIS SPRING: wardsintelligence.informa.com/WI966999/US-LightVehicle-Sales-Inventory-Continue-Upward-Climb-in-February

(c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets. 
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States. 
*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.