Fed Expected To Raise Rates In February

In his podcast addressing the markets today, Louis Navellier offered the following commentary.

If you wish to listen to this commentary, please click here.

The market tried to rally this morning, but then it fizzled since there is no volume. It’s hard for the market to do anything when no one is around. Normally there’s quarter-end window dressing and some positive action in the last week of the year, but this year it doesn’t exist which is unfortunate.

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Q3 2022 hedge fund letters, conferences and more

More Rate Hikes

The other thing that’s overhanging the market is bond yields. The 10-year Treasury bond yield is 3.87% right now which is pretty high. It has gone up considerably in recent weeks. And as market rates go higher, it’ll make the Fed raise rates. Right now it looks like the Fed is going to have to raise rates on February 1st.

Pricking Inflation Bubble

The National Association of Realtors on Wednesday reported that pending home sales in November declined 4% compared to October. This was the sixth straight month that pending home sales declined and the lowest monthly home sales ever recorded, excluding the months immediately after the Covid pandemic commenced.

In the past 12 months, pending home sales declined 37.8%. Hopefully, these weak home sales will show up in the Owner Equivalent Rent component in the Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) index, since that is the inflation component that the Fed is striving to contain.

G7 vs Russia

Russia on Tuesday officially banned the sales of crude oil and petroleum products to the G7 countries that imposed a $60 per barrel price cap on Russian crude oil. Hungary and other landlocked European Union (EU) nations are requesting exemptions from the G7 price caps on Russian crude oil.

Overall, the G7 versus Russia continues to get very interesting. The bottom line is price caps tend to fail, but in the interim, Russia’s ban on selling crude oil to the G7 will likely help to push crude oil prices higher.

The Commerce Department announced on Tuesday that the trade deficit in November plunged 15.6% to $83.3 billion as exports declined 3.1% to $168.9 billion and imports rose plunged 7.6% to $252.2 billion.

A shrinking trade deficit is very bullish for GDP growth, so I suspect that most economists will revise their fourth-quarter GDP estimates higher due to a shrinking November trade deficit.

In previous quarters, a shrinking trade deficit, due largely to petroleum exports, added 1.2% to second-quarter GDP growth and 2.9% to third-quarter GDP growth.

The good news is that MasterCard reported this week that retail sales rose 7.6% between November 1^st to December 24^th, compared to a year ago. Steep discounts and Black Friday sales aided the holiday sales increase.

However, since inflation rose 8.5% in the past year, the 7.6% increase in holiday sales is still somewhat disappointing, since sales could not keep pace with the underlying inflation rate.

Coffee Beans

Americans aren’t feeling great about the economy and the environment in 2023, according to the latest poll by Ipsos. Out of approximately 1,000 surveyed U.S. adults, more than three-quarters said that prices will increase faster than people’s wages, while around two-thirds said unemployment will be higher than in 2022. Source: Statista. See the full story here.

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