12/23/22 – We Had A Feeling…

We had a feeling the government economists wouldn’t let 2022 get away without a little post-FOMC volatility.  A summation of the economic releases this week is that the housing market stinks, inflation continues to be a problem, and consumer confidence ticked up last month.  We’re skeptical of that last point.  Both the Conference Board and the University of Michigan showed an uptick in confidence despite the continued array of layoff announcements.  Our conclusion is that the uptick is directly correlated to the drop in gas prices and nothing more.

Despite the uptick, we’d describe the narrative of this week’s trading as “get ready for the recession, and it might be worse than feared.”  At least from the perspective of equity investors.  Equities are down about 5% from their midmonth high and Treasury Bills continue to trade at depressed levels versus Reverse Repo and targeted Fed Funds.  Mid-January T-bills are trading at 3.60%, as the remnants of the Fed’s quantitative easing continue to flood the short maturity market.  The paradox is that housing and auto sales are suffering from tight money (high borrowing rates) while easy money is depressing interest rates across the curve. Meanwhile, the U.S. Dollar, which had been trending to new highs throughout the year, has reversed and is trading at what could be called fair value versus most trading partners.

That is the conundrum the Federal Reserve will face as they kick off the new year.  The next week, as one would expect, is light on economic data and we should close out the year close to today’s levels.

Our next Weekly Wrap will be Friday, January 6th.  Happy Holidays to all!!!

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