QUOTE OF THE WEEK
“One small positive thought in the morning can change your whole day.” – unknown
TECH CORNER
The big report on inflation came out this week and it wasn’t good for the potential of future rate cuts by the Federal Reserve.
According to the latest data from the Bureau of Labor Statistics released Tuesday morning, U.S. consumer prices rose more than expected in January.
The Consumer Price Index (CPI) rose 0.3% over the previous month and 3.1% over the prior year in January, slightly higher than December’s 0.2% month over month increase.
On the “core” inflation basis, which strips out the more volatile costs of food and gas, January prices climbed 0.4% over the prior month and 3.9% over the last year.
The stock market sure didn’t like the news as it took a deep dive on Tuesday. It has recovered slightly today (Wednesday) but this is not good news for the stock or bond market.
What this means for the stock market is that if the Fed keeps rates high for longer, it will put pressure on the economy. Remember, higher interest rates are a hidden tax on the economy. Consumers who have credit card debt and want to borrow money, are restricted in what they have to spend which results in less consumption.
For bond holders of longer duration bonds, it means that interest rates will probably stay higher, which could result in their bond holdings not appreciating or could even depreciate if rates go higher. Remember when interest rates drop bond prices go up and when interest rates rise bond prices go down.
We are in interesting times with no clear direction on the stock markets or the bond markets.
We are positioned safely and will take advantage of the market when appropriate. Omega 2 is exploring possibilities within larger cap quality.
