Interest rates, inflation, US dollar and sector rotations – The Average Joe

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2023 is almost here. If New Year’s is anything like 2022 – it’s going to be another long year of afternoon drinks.

But fear not; A Fed pivot may be near. 🤞

Bad enough rhymes. Let’s dive into the key themes we’ll see over the next year.

1/ Interest rates: Will we cut in 2023?

The central bank is expected to slow the pace of rate hikes today. It won’t be zero, but we’re getting there.

Now, the question is, when will they cut the fares?

A JP Morgan study That showed last week ~45% Investors expect the Fed to cut rates in 2023.

2/ The US Dollar: Have We Peaked?

The USD is trading at multi-decade highs – affecting other global economies and negatively impacting many US companies.

Since October, the USD has already fallen 9% against a basket Six Other Major Currencies

Why is this important? A lower USD means US goods become cheaper for the rest of the world – benefiting US companies with greater international exposure.

3/ Inflation-Linked Bonds: Downside From Here?

Treasury Inflation-Protected Securities (TIPS) and Series I Savings Bonds These are popular inflation hedges for 2022.

Their income is directly linked to inflation. If inflation goes up, their income will go up.

Current yield of Series I Savings Bonds:

It has already decreased 9.62% In the former Six months. After yesterday’s CPI report, inflation seems to be easing.

4/ Value vs. Growth: Are we in for another cycle?

Growth stocks began their decline at the end of 2021. And they keep falling… and falling…

Those who got caught early moved into cash or parked their money in defensive industries:

  • Top S&P 500 Sectors: energy (+53%), applications (+0.6%), consumer staples (1%), and healthcare (1.3%)
  • Worst S&P 500 Sectors: contacts (39%), consumer preference (32%), plot (26%) and IT (24%)

Here’s how value and growth stocks have performed this year:

Here’s what we’re looking for in 2023: Fed Pivot (Cut Rates), Markets Down, and Growth Returns. But don’t expect it to happen in that order.


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