Category: Economy

Inflation Rises More Than Expected in December, Keeping Pressure on Fed

Posted on by slightbourne@noblecapitalmarkets.com

Inflation picked up more than anticipated in December, dimming hopes that the Federal Reserve can soon pause its interest rate hiking campaign.

The Consumer Price Index (CPI) rose 0.3% in December compared to the prior month, according to Labor Department data released Thursday. Economists surveyed by Bloomberg had projected a 0.2% monthly gain.

On an annual basis, inflation hit 3.4% in December, accelerating from November’s 3.1% pace and surpassing expectations for 3.2% growth.

The uptick keeps the heat on the Fed to maintain its aggressive monetary tightening push to wrestle inflation back towards its 2% target. Investors were optimistic the central bank could stop hiking rates and even start cutting them in early 2023. But with inflation proving sticky, the Fed now looks poised to keep benchmark rates elevated for longer.

“This print is aligned with our view that disinflation ahead will be gradual with sticky services inflation,” said Ellen Zentner, chief U.S. economist at Morgan Stanley, in a note.

Core Contributes to Inflation’s Persistence

Stripping out volatile food and energy costs, the core CPI increased 0.3% in December, matching November’s rise. Core inflation rose 3.9% on an annual basis, up slightly from November’s 4.0% pace.

The core reading came in above estimates for a 0.2% monthly gain and 3.8% annual increase. The higher-than-expected core inflation indicates that even excluding food and gas, costs remain stubbornly high across many categories of goods and services.

Shelter costs are a major culprit, with rent indexes continuing to climb. The indexes for rent of shelter and owners’ equivalent rent both advanced 0.5% in December, equaling November’s rise.

Owners’ equivalent rent attempts to estimate how much homeowners would pay if they rented their properties. This category accounts for nearly one-third of the overall CPI index and over 40% of core CPI.

With shelter carrying so much weighting, persistent gains here will hinder inflation’s descent. Supply-demand imbalances in the housing market are delaying a moderation in rents.

Used Cars See Relief; Insurance Soars

Gently easing price pressures showed up in the used vehicle market. Used car and truck prices edged up just 0.1% in December following several months of declines. In November, used auto prices fell 0.2%.

New vehicle prices also cooled again, dipping 0.1% versus November’s 0.2% decrease. The reprieve comes after a long bout of supply shortages weighed on auto affordability.

But motor vehicle insurance blindsided with its largest annual increase since 1976, vaulting 20.3% higher over the last 12 months. In November, the insurance index had risen 8.7% year-over-year.

Food Index Fluctuates

Food prices have been especially volatile, reacting to supply chain disruptions and geopolitical developments like the war in Ukraine. The food index rose 0.1% in December, down from November’s 0.5% increase.

The index for food at home slid 0.1% last month, reversing course after four straight monthly gains. Egg prices spiked 8.9% higher in December, building on November’s 2.2% surge. The egg index has skyrocketed 60% year-over-year.

But not all grocery aisles saw rising costs. Fruits and vegetables turned cheaper, with the index dropping 0.6% as supply conditions improved.

Bigger Picture View

The faster-than-expected inflation in December keeps the Fed on course to drive rates higher for longer to manage price pressures. Markets are still betting officials will engineer a soft landing and start cutting interest rates by March.

But economists warn more patience is needed before declaring victory over inflation. “Overall, the December CPI report reminds us that inflation will decline on a bumpy road, not a smooth one,” said Jeffrey Roach, chief economist at LPL Financial.

Until clear, convincing signs of disinflation emerge, the Fed looks unlikely to pivot from its aggressive inflation-fighting stance. The CPI report illustrates the complexity of the inflation picture, with some components moderating while others heat up.

With shelter costs up over 6% annually and services inflation staying elevated, the Fed has reasons for caution. Moderately higher inflation won’t necessarily prompt more supersized rate hikes, but it may prolong the current restrictive policy.

Investors longing for a Fed “pivot” may need to wait a bit longer. But the war against inflation rages on, even with the December CPI report threatening to squash hopes of an imminent policy easing.

Global Economic Slump Spells Trouble for US and Investors

Posted on by slightbourne@noblecapitalmarkets.com

The World Bank delivered sobering news this week in its latest “Global Economic Prospects” report, forecasting that global growth will continue to decline for the third straight year in 2024. At just 2.4%, worldwide expansion will mark the weakest five-year period since the early 1990s.

While the US economy has so far avoided recession despite high inflation and interest rate hikes, this prolonged global slowdown spells troubling times ahead for American companies, consumers and investors.

With economic growth slowing across most regions, demand for US exports is likely to take a hit. That’s especially true among major US trading partners like Europe and China, where growth is expected to continue decelerating. Weakening global demand could mean reduced overseas profits for US corporations.

At home, slower worldwide growth often translates to weaker job creation and output in export-reliant industries like technology, aerospace, agriculture and oil. Though the US economy is more insulated than many countries, cooling global demand would threaten domestic growth and productivity.

For American consumers, a slumping world economy means higher prices and tightening budgets. As other nations buy fewer US goods, the dollar strengthens against foreign currencies. That makes American products and services more expensive for international buyers, compounding the export slowdown.

Meanwhile, weaker global growth tends to reduce international appetite for oil and other commodities, bringing down prices. But previous commodity plunges didn’t translate into much consumer relief at the gas pump or grocery store. US inflation has shown stubborn persistence despite declining global demand.

For investors, a rocky global economy brings heightened volatility and uncertainty. US stocks often suffer from reduced exports, earnings and risk appetite. Bonds become more attractive as a safe haven, but provide little income. International investments also falter as foreign economies sputter.

With developing nations hit hardest by the global downturn, their stocks and currencies become riskier bets. Investing in emerging markets seems particularly perilous as growth in those countries lags the developed world by a widening margin.

But it’s not all gloomy news for investors. Some experts argue that ongoing globalization and diversification make the US less vulnerable to foreign slowdowns than in the past. Plus, some areas like the travel, manufacturing and technology sectors could see gains from specific international developments.

And slowdowns inevitably give way to upswings. The World Bank sees global growth accelerating slightly in 2025. Meanwhile, strategists say investors should take advantage of market overreactions to bad news to buy quality stocks at bargain prices – potentially reaping big rewards when conditions improve.

Still, there’s no doubt the darkening global outlook presents mounting risks for the US in the next few years. With other major economies struggling, America can’t escape the coming storm entirely.

Navigating the choppy waters ahead requires prudent preparation. The World Bank urges policy reforms to enable productivity-enhancing investments that could reignite US and global growth. But in the meantime, Americans must brace for bumpier times, with US growth, jobs and earnings likely to suffer collateral damage from the world’s economic travails.

Strong December Jobs Report Challenges Expectations of Imminent Fed Rate Cuts

Posted on by slightbourne@noblecapitalmarkets.com

The Labor Department’s December jobs report reveals continued strength in the U.S. economy that defies expectations of an imminent slowdown. Employers added 216,000 jobs last month, handily beating estimates of 170,000. The unemployment rate remained low at 3.7%, contrary to projections of a slight uptick.

This hiring surge indicates the labor market remains remarkably resilient, even as the Federal Reserve wages an aggressive battle against inflation through substantial interest rate hikes. While many anticipated slowing job growth at this stage of the economic cycle, employers continue adding workers at a solid clip.

Several sectors powered December’s payroll gains. Government employment rose by 52,000, likely reflecting hiring for the 2024 Census. Healthcare added 38,000 jobs across ambulatory care services and hospitals, showing ongoing demand for medical services. Leisure and hospitality contributed 40,000 roles, buoyed by Americans’ continued willingness to dine out and travel.

Notable gains also emerged in social assistance (+21,000), construction (+17,000), and retail (+17,000), demonstrating broad-based labor market vitality. Transportation and warehousing shed 23,000 jobs, a rare weak spot amid widespread hiring.

Just as importantly, wage growth remains elevated, with average hourly earnings rising 0.4% over November and 4.1% year-over-year. This exceeds projections, signaling ongoing inflationary pressures in the job market as employers compete for talent. It also challenges hopes that wage growth would start moderating.

Financial markets reacted negatively to the jobs data, with stock index futures declining sharply and Treasury yields spiking. The strong hiring and wage numbers dampen expectations for the Fed to begin cutting interest rates in the first half of 2023. Traders now see reduced odds of a rate cut at the March policy meeting.

This report paints a picture of an economy that is far from running out of steam. Despite the steepest interest rate hikes since the early 1980s, businesses continue adding jobs at a healthy pace. Consumers keep spending as well, with holiday retail sales estimated to have hit record highs.

Meanwhile, GDP growth looks solid, inflation has clearly peaked, and the long-feared recession has yet to materialize. Yet the Fed’s priority is returning inflation to its 2% target. With the job market still hot, the path to lower rates now appears more arduous than markets anticipated.

The data supports the notion that additional rate hikes may be necessary to cool economic activity and tame inflation. However, the Fed also wants to avoid triggering a recession through overtightening, making its policy stance a delicate balancing act.

For most of 2023, the central bank enacted a series of unusually large 0.75 percentage point rate increases. But it downshifted to a 0.5 point hike in December, and markets once priced in rate cuts starting as early as March 2024. This jobs report challenges that relatively dovish stance.

While inflation is clearly off its summertime highs, it remains well above the Fed’s comfort zone. Particularly concerning is the continued strong wage growth, which could fuel further inflation. Businesses will likely need to pull back on hiring before the wage picture shifts significantly.

Despite market hopes for imminent rate cuts, the Fed has consistently stressed the need to keep rates elevated for some time to ensure inflation is well and truly tamed. This data backs up the central bank’s more hawkish messaging in recent weeks.

The strong December jobs numbers reinforce the idea that the economy enters 2024 on solid ground, though facing uncertainties and challenges on the path ahead. With inflation still lingering and the full impacts of rising interest rates yet to be felt, the road back to normalcy remains long.

For policymakers, the report highlights the delicate balancing act between containing prices and maintaining growth. Cooling the still-hot labor market without triggering a downturn will require skillful and strategic policy adjustments informed by data like this jobs report.

While markets may hope for a swift policy pivot, the Fed is likely to stay the course until inflation undeniably approaches its 2% goal on a sustained basis. That day appears further off after this robust jobs data, meaning businesses and consumers should prepare for more rate hikes ahead.

Job Openings Dip but Labor Market Remains Strong

Posted on by slightbourne@noblecapitalmarkets.com

The monthly Job Openings and Labor Turnover Survey (JOLTS) report released this week showed job openings decreased slightly to 8.79 million in November. While a decline from October’s total, openings remain historically high, indicating continued labor market strength.

For investors, the data provides evidence that the economy is headed for a soft landing. The Federal Reserve aims to cool inflation by moderating demand and employment growth, without severely damaging the job market. The modest dip in openings suggests its interest rate hikes are having the intended effect.

Openings peaked at 11.9 million in March 2022 as employers struggled to fill vacancies in the tight post-pandemic job market. The ratio of openings to unemployed workers hit nearly 2-to-1. This intense competition for workers drove up wages, contributing to rampant inflation.

Since then, the Fed has rapidly increased borrowing costs to rein in spending and hiring. As a result, job openings have fallen over 25% from peak levels. In November, there were 1.4 openings for every unemployed person, down from 2-to-1 earlier this year.

While hiring also moderated in November, layoffs remained low. This indicates companies are being selective in their hiring rather than resorting to widespread job cuts. Employers added 263,000 jobs in November, underscoring labor market resilience.

With job openings still elevated historically and unemployment at 3.7%, the leverage remains on the side of workers in wage negotiations. But the cooling demand takes pressure off employers to fill roles at any cost.

Markets Welcome Gradual Slowdown

Financial markets have reacted positively to signs of a controlled economic deceleration. Stocks rallied in 2023 amid evidence that inflation was peaking while the job market avoided a precipitous decline.

Moderating job openings support the case for a soft landing. Investors hope further gradual cooling in labor demand will help the Fed tame inflation without triggering a severe downturn.

This optimizes the backdrop for corporate earnings. While companies face margin pressure from elevated wages and input costs, strong consumer spending power has mitigated the impact on revenues so far.

The risk is that the Fed overtightens and causes an excessive pullback in hiring. Another JOLTS report showing a sharper decline in openings would sound alarm bells. But November’s modest drop eases fears.

All eyes are now on the timing of the Fed’s anticipated pivot to interest rate cuts. Markets hope easing begins in mid-2024, while the Fed projects cuts starting later this year. The path of job openings will influence its timeline.

Slower but sustained labor demand enables the central bank to maintain a steady policy course. But an abrupt downward turn would pressure quicker rate cuts to stabilize growth.

Sector Impacts

The cooling job market has varying implications across stock market sectors. Rate-sensitive high-growth firms like technology would benefit most from earlier Fed easing.

Cyclical sectors closely tied to economic growth, like industrials and materials, favor the steady flight path as it sustains activity while containing inflation. Financials also prefer the status quo for now, given the tailwind of higher interest rates.

Meanwhile, sectors struggling with worker shortages and wage pressures welcome moderating openings. Leisure and hospitality saw one of the steepest monthly declines in November after leading last year’s hiring surge.

But the pullback remains measured rather than extreme. This supports a soft landing that preserves economic momentum and corporate earnings strength, even as financial conditions tighten. With the Fed striking a delicate balance so far, investors’ hopes are high for an extended expansion.

Fed Rate Cut Timing in Focus as New Year Kicks Off

Posted on by slightbourne@noblecapitalmarkets.com

As 2024 begins, all eyes are on the Federal Reserve to see when it will pivot towards cutting interest rates from restrictive levels aimed at taming inflation. The Fed’s upcoming policy moves will have major implications for markets and the economy in the new year.

The central bank raised its benchmark federal funds rate sharply in 2023, lifting it from near zero to a range of 5.25-5.5% by December. But with inflation pressures now easing, focus has shifted to when the Fed will begin lowering rates once again.

Markets are betting on cuts starting as early as March, while most economists see cuts beginning around mid-2024. The Fed’s minutes from its December meeting, being released this week, may provide clues about how soon cuts could commence.

Fed Chair Jerome Powell has stressed rate cuts are not yet under discussion. But he noted rates will need to fall before inflation returns to the 2% target, to avoid tightening more than necessary.

Recent data gives the Fed room to trim rates sooner than later. Core PCE inflation rose just 1% annually in November, and has run under 2% over the past six months.

With inflation easing faster than expected while the Fed holds rates steady, policy is getting tighter by default. That raises risks of ‘over-tightening’ and causing an unneeded hit to jobs.

Starting to reduce rates by March could mitigate this risk, some analysts contend. But the Fed also wants to see clear evidence that underlying inflation pressures are abating as it pivots policy.

Upcoming jobs, consumer spending and inflation data will guide rate cut timing. The January employment report and December consumer inflation reading, out in the next few weeks, will be critical.

Markets Expect Aggressive Fed Easing

Rate cut expectations have surged since summer, when markets anticipated rates peaking above 5%. Now futures trading implies the Fed will slash rates by 1.5 percentage points by end-2024.

That’s far more easing than Fed officials projected in December. Their forecast was for rates to decline by only 0.75 point this year.

Such aggressive Fed easing would be welcomed by equity markets. Stocks notched healthy gains in 2023 largely due to improving inflation and expectations for falling interest rates.

Further Fed cuts could spur another rally, as lower rates boost the present value of future corporate earnings. That may help offset risks from still-high inflation, a slowing economy and ongoing geopolitical turmoil.

But the Fed resists moving too swiftly on rates. Quick, large cuts could unintentionally re-stoke inflation if done prematurely. And inflated rate cut hopes could set markets up for disappointment.

Navigating a ‘Soft Landing’ in 2024

The Fed’s overriding priority is to engineer a ‘soft landing’ – where inflation steadily falls without triggering a recession and large-scale job losses.

Achieving this will require skillful calibration of rate moves. Cutting too fast risks entrenching inflation and forcing even harsher tightening later. But moving too slowly could cause an unnecessary downturn.

With Treasury yields falling on rate cut hopes, the Fed also wants to avoid an ‘inverted’ yield curve where short-term yields exceed long-term rates. Prolonged inversions often precede recessions.

For now, policymakers are taking a wait-and-see approach on cuts while reiterating their commitment to containing inflation. But market expectations and incoming data will shape the timing of reductions in the new year.

Global factors add complexity to the Fed’s policy path. While domestic inflation is cooling, price pressures remain stubbornly high in Europe. And China’s reopening may worsen supply chain strains.

Russia’s ongoing war in Ukraine also breeds uncertainty on geopolitics and commodity prices. A flare up could fan inflation and force central banks to tighten despite economic weakness.

With risks abounding at the start of 2024, investors will closely watch the Fed’s next moves. Patience is warranted, but the stage appears set for rate cuts to commence sometime in the next six months barring an unforeseen shock.

New Inflation Data Supports Case for Fed Rate Cuts in 2024

Posted on by slightbourne@noblecapitalmarkets.com

The latest inflation report released on Friday provides further evidence that price pressures are cooling, opening the door for the Federal Reserve to pivot to rate cuts next year.

The core personal consumption expenditures (PCE) index, which excludes food and energy costs, rose 3.2% in November from a year earlier. That was slightly below economists’ expectations for a 3.3% increase, and down from 3.7% inflation in October.

On a 6-month annualized basis, core inflation slowed to 1.9%, dipping below the Fed’s 2% target for the first time in three years. The moderating price increases back up Fed Chair Jerome Powell’s comments last week that inflation has likely peaked after months of relentless gains.

Following Powell’s remarks, financial markets boosted bets that the Fed would begin slashing interest rates in early 2024 to boost economic growth. Futures prices now show traders see a more than 70% likelihood of a rate cut by March.

The Fed kicked off its tightening cycle in March, taking its benchmark rate up to a 15-year high of 4.25% – 4.50% from near zero. But Powell signaled last week the central bank could hold rates steady at its next couple meetings as it assesses the impacts of its aggressive hikes.

Still, some Fed officials have pumped the brakes on expectations for imminent policy easing. They noted it is premature to pencil in rate cuts for March when recent inflation data has been mixed.

Cleveland Fed President Loretta Mester said markets have “gotten a little bit ahead” of the central bank. And Richmond Fed President Tom Barkin noted he wants to see services inflation, which remains elevated at 4.1%, also moderate before officials can decide on cuts.

More Evidence Needed

The Fed wants to see a consistent downward trajectory in inflation before it can justify loosening policy. While the latest core PCE print shows prices heading the right direction, policymakers need more proof the disinflationary trend will persist.

Still, the report marked a step forward after inflation surged to its highest levels in 40 years earlier this year on the back of massive government stimulus, supply chain snarls and a red-hot labor market.

The Commerce Department’s downward revision to third quarter core PCE to 2%, right at the Fed’s goal, provided another greenshoot. Personal incomes also grew a healthy 0.4% in November, signaling economic resilience even in the face of tighter monetary policy.

Fed officials will closely monitor upcoming inflation reports, especially core services excluding housing. Categories like healthcare, education and recreation make up 65% of the core PCE index.

Moderation in services inflation is key to convincing the Fed that broader price pressures are easing. Goods disinflation has been apparent for months, helped by improving supply chains.

Path to Rate Cuts

To justify rate cuts, policymakers want to see months of consistently low inflation paired with signs of slowing economic growth. The Fed’s forecasts point to GDP growth braking from 1.7% this year to just 0.5% in 2023.

Unemployment is also projected to rise, taking pressure off wage growth. Leading indicators like housing permits and manufacturing orders suggest the economy is heading for a slowdown.

Once the Fed can be confident inflation will stay around 2% in the medium term, it can then switch to stimulating growth and bringing down unemployment.

Markets are currently betting on the Fed starting to cut rates in March and taking them back down by 1.25 percentage points total next year. But analysts warn against getting too aggressive in rate cut expectations.

“There is mounting evidence that the post-pandemic inflation scare is over and we expect interest rates to be cut significantly next year,” said Capital Economics’ Andrew Hunter.

The potential for financial conditions to tighten again, supply chain problems or an inflation rebound all pose risks to the dovish outlook. And inflation at 3.2% remains too high for the Fed’s comfort.

Fed Chair Powell has warned it could take until 2024 to get inflation back down near officials’ 2% goal. Monetary policy also acts with long lags, meaning rate cuts now may not boost growth until late 2023 or 2024.

With risks still skewed, the Fed will likely take a cautious approach to policy easing. But the latest data gives central bankers confidence their inflation fight is headed in the right direction.

Consumer Confidence Jumps to Five-Month High, Signaling Economic Optimism

Posted on by slightbourne@noblecapitalmarkets.com

U.S. consumer confidence increased substantially in December to reach its highest level in five months, according to new data from the Conference Board. The confidence index now stands at 110.7, up sharply from 101.0 in November. This surge in optimism indicates consumers have a brighter economic outlook heading into 2024.

The gains in confidence were broad-based, occurring across all age groups and household income levels. In particular, confidence rose sharply among 35-54 year olds as well as those earning $125,000 per year or more. Consumers grew more upbeat about both current conditions and their short-term expectations for business, jobs, and income growth.

The large improvement in consumer spirits is likely the result of several positive economic developments in recent months. Stock markets have rebounded, mortgage rates have retreated from their peaks, and gas prices have declined significantly. Many shoppers also appear to be returning to more normal holiday spending after two years of pandemic-distorted patterns.

Labor Market Resilience Boosts Spending Power

Driving much of this economic optimism is the continued resilience in the labor market. The survey’s measure of jobs plentiful versus hard to get widened substantially in December. This correlates with the 3.7% unemployment rate, which remains near a 50-year low. Robust hiring conditions and rising wages are supporting the consumer spending that makes up 70% of GDP.

With inflationary pressures also showing signs of cooling from 40-year highs, households have more spending power heading into 2023. Consumers indicated plans to increase purchases of vehicles, major appliances, and vacations over the next six months. This points to solid ongoing support for economic growth.

Fed Rate Hikes Could Be Nearing an End

Another factor buoying consumer sentiment is growing expectations that the Fed may pause its rapid interest rate hikes soon. After a cumulative 4.25 percentage points of tightening already delivered, markets are betting on a peak rate below 5% in early 2024.

This prospect of nearing an end to historically-aggressive Fed policy has sparked a powerful rally in rate-sensitive assets like bonds and stocks while boosting housing affordability. With inflation expectations among consumers also falling to the lowest since October 2020, pressure on the central bank to maintain its torrid tightening pace is declining.

Housing Market Poised for Rebound

One key area that could see a revival from lower rates is the housing sector. Existing home sales managed to eke out a small 0.8% gain in November following five straight months of declines. While higher mortgage rates earlier this year crushed housing affordability, the recent rate relief triggered a jump in homebuyer demand.

More consumers reported plans to purchase a home over the next six months than any time since August. However, extremely tight inventory continues hampering sales. There were just 1.13 million homes for sale last month, 60% below pre-pandemic levels. This lack of supply will likely drive further home price appreciation into 2024.

The median existing-home price rose 4% from last year to $387,600 in November. But lower mortgage rates could bring more sellers and buyers to the market. Citigroup economists project stronger price growth next spring and summer as rates have room to decrease further. This would provide a boost to household wealth and consumer spending power.

Economic Growth Appears Solid Entering 2024

Overall, with consumers opening their wallets and the job market thriving, most economists expect the US to avoid a downturn next year. The sharp rise in confidence, spending intentions, and housing market activity all point to continued economic growth in early 2024.

Inflation and Fed policy remain wildcards. But the latest data indicates the price surge has passed its peak. If this trend continues alongside avoiding a spike in unemployment, consumers look primed to keep leading GDP forward. Their renewed optimism signals economic momentum instead of approaching recession as 2024 gets underway.

Is a Market Recovery in Sight?

Posted on by slightbourne@noblecapitalmarkets.com

The stock market roared back to life on Thursday after the Federal Reserve laid out an ideal scenario for investors – falling inflation, rate cuts on the horizon, and an economy heading for a soft landing.

The Dow jumped nearly 500 points to top 37,000 for the first time ever, while the S&P 500 closed in on its record high from early 2022. And the interest rate-sensitive Russell 2000 small cap index outperformed larger benchmarks by over 50% as investors pivoted towards beaten-down areas of the market.

According to Noble Capital Markets’ CEO Nico Pronk, “this may be a market recovery happening in front of our eyes. We are seeing all the signs here.” Fed Chair Jerome Powell’s highly anticipated comments on Wednesday took the lid off the market’s concerns over surging rates upending the economy. The central bank’s updated forecasts now call for no more rate hikes in 2023, along with three 0.25% cuts in 2024.

That’s welcomed news for rate-sensitive sectors like real estate and regional banks that have been hammered for most of 2022 on fears of sustained higher borrowing costs. Regional banks popped nearly 5% on Thursday, extending a rally that has seen the group gain over 20% in the past month alone as the path towards rate cuts grows clearer.

The tech-heavy Nasdaq also continues to rebound, now up over 10% since mid-October, while the small cap Russell 2000 has exploded more than 20% over the same stretch. The index had given up all its pandemic-era gains earlier in 2022 amid rate hike jitters, but with a soft landing now in sight, it’s leading the way higher once again.

Pronk believes markets are moving towards a positive direction and showing strong signs of recovery.

Economic Experts Forecasted Markets Breakout

During an economic outlook panel at NobleCon19, experts agreed on a possible resurgence of the markets, particularly in the small-cap space. The consensus was that small-cap investments tend to outperform larger companies during economic recoveries due to their greater potential for growth. The panel expressed optimism for how the Russell 2000 index may surprise investors moving into 2024.

With inflation and rates now clearly on downward trajectories per the Fed, the stars have aligned for financials to break out as risks meaningfully recede. Traders and investors are taking notice, investing money back into the space to play long-awaited catchup to index gains.

Russell 2000 Small Caps Lead the Charge

Another standout area has been small caps, with the domestically-focused Russell 2000 now charging ahead of larger benchmarks since the October lows.

The Fed’s resolute commitment to tamping down inflation has brought U.S. rate hike expectations back in sync with global peers. That’s helped dissipate a major headwind for small caps tied closely to domestic growth.

Add in falling recession odds, and the stage is set for investors to once again embrace the higher growth, higher beta segment of the U.S. market to drive gains from here. The Russell 2000 now trades just 6% away from retaking all-time highs emblematic of the pre-rate hiking frenzy.

Its outsized advance against the more moderate S&P and Dow gains points to conviction building around more speculative areas poised to benefit most from easing financial conditions. Traders now see the elusive soft landing materializing in 2023, with markets firing ahead on hopes a still-resilient economy can avoid buckling under the Fed’s inflation fight.

After a Fed-dominated year where good news was largely shunned amid policy uncertainty, bulls once again have reasons for optimism. The light at the end of the rate hiking tunnel has markets gearing up for a potentially substantial move higher to round out 2023.

El Salvador’s Cryptocurrency Renaissance: Unveiling the Historic Bitcoin Bonds and the Rise of Bitcoin City

Posted on by slightbourne@noblecapitalmarkets.com

In a revolutionary move, El Salvador has solidified its place as a trailblazer in the world of cryptocurrency by announcing the regulatory approval and issuance of Bitcoin bonds, colloquially known as “Volcano Bonds.” Set to launch in the first quarter of 2024, these bonds represent a groundbreaking step towards financing the construction of “Bitcoin City,” a visionary project fueled by thermal energy from a volcano. As El Salvador continues to make waves in the crypto space, this article explores the intricacies of the Volcano Bonds and the broader implications for investors and the country’s economic landscape.

A Visionary Leap into Cryptocurrency

Led by President Nayib Bukele, El Salvador made history in 2021 by declaring Bitcoin as legal currency alongside the US dollar. The objective was to streamline remittances and enhance financial services accessibility for the 70 percent of Salvadorans lacking a traditional bank account. Despite this bold move, a May 2021 poll by the Central American University revealed that 71 percent of respondents believed Bitcoin had not positively impacted their family’s economic situation.

However, undeterred by public sentiment, El Salvador pressed on, guided by a vision that extended beyond mere adoption to the creation of a transformative “Bitcoin City” in the country’s eastern region. This city, powered by thermal energy harnessed from a volcano, aimed to be a beacon of innovation and sustainability.

The Volcano Bonds: Financing the Future

The Volcano Bonds, set to launch in early 2024, are instrumental in turning President Bukele’s vision into reality. Approved by the Digital Assets Commission (CNAD), these bonds represent a financial instrument designed to address sovereign debt obligations while providing the capital needed to construct Bitcoin City. With an allocation of at least $1 billion from the Volcano Bonds earmarked for the project, El Salvador is poised to create a technological marvel that showcases the synergy between cryptocurrency and sustainable development.

Building Bitcoin City: A Green Technological Marvel

Bitcoin City is more than just a construction project; it symbolizes El Salvador’s commitment to sustainable and innovative urban development. The use of thermal energy from a volcano not only underscores the country’s unique geographical advantages but also signals a departure from traditional energy sources, aligning with the global push for green initiatives.

As investors look toward the horizon, the construction of Bitcoin City becomes an intriguing prospect. The success of this project could potentially inspire similar endeavors worldwide, with governments and private entities exploring the integration of cryptocurrency in urban planning and development.

El Salvador’s Growing Bitcoin Holdings

To solidify its commitment to cryptocurrency, the Salvadoran government has steadily increased its Bitcoin holdings. Currently holding 2,381 bitcoins, the government’s latest purchase of 80 bitcoins in July 2022 reflects a strategic approach to accumulating this digital asset. President Bukele further announced a plan to acquire one bitcoin daily starting from November 17, 2022, although the government has not disclosed whether this target has been met.

This concerted effort to amass Bitcoin underscores El Salvador’s belief in the long-term value and potential of cryptocurrency. For investors, it signals a country actively diversifying its portfolio, adding a digital asset to its reserves in a strategic move that aligns with the evolving landscape of global finance.

Take a moment to take a look at Bit Digital (BTBT), a large-scale bitcoin mining business and a sustainability focused generator of digital assets.

Trading on the Bitfinex Securities Platform

The issuance of the Volcano Bonds is set to take place on the Bitfinex Securities Platform, a registered trading site for blockchain-based equities and bonds in El Salvador. This move not only streamlines the trading process but also marks a bridge between traditional financial systems and the burgeoning cryptocurrency landscape. It invites investors to participate in a novel financial instrument backed by the transformative power of blockchain technology.

Beyond Volcano Bonds: El Salvador’s Cryptocurrency Ventures

El Salvador’s foray into cryptocurrency extends beyond the Volcano Bonds. In a recent development, the country launched a $1 billion Bitcoin mining project in collaboration with Luxor Technology and Tether. Dubbed “Volcano Energy,” this initiative aims to establish a 241 MW generation park named in honor of the project, where Bitcoin mining will take center stage.

As El Salvador actively explores the potential of cryptocurrency in diverse sectors, investors keen on embracing the future of finance should keep a close eye on the country’s progressive initiatives. The Volcano Energy project, in particular, demonstrates the integration of Bitcoin mining with traditional energy infrastructure, offering a unique investment avenue for those looking to diversify within the cryptocurrency space.

Conclusion: Investing in El Salvador’s Cryptocurrency Odyssey

El Salvador’s journey into the world of Bitcoin bonds, Bitcoin City, and innovative cryptocurrency projects is not only historic but presents a unique investment landscape. As the Volcano Bonds come to fruition in the first quarter of 2024, investors have an opportunity to be part of a transformative chapter in the country’s economic history.

The success of Bitcoin City and other cryptocurrency initiatives in El Salvador could potentially pave the way for similar endeavors globally. Investors, whether seasoned cryptocurrency enthusiasts or those exploring the space for the first time, should closely monitor the developments in El Salvador. The “Bitcoin City” powered by a volcano is not just a symbol of technological advancement but a beacon for those seeking investment opportunities in the ever-evolving world of cryptocurrency. El Salvador’s cryptocurrency renaissance is unfolding, and investors have a front-row seat to witness the fusion of tradition and innovation in the heart of Central America.

The SEC’s Clearing Mandate: A Major Shift for the US Treasury Market

Posted on by slightbourne@noblecapitalmarkets.com

The US Securities and Exchange Commission (SEC) has implemented a major shift in the $26 trillion US Treasury market, adopting new regulations aimed at reducing systemic risk by forcing more trades through clearing houses. This overhaul, approved on December 13th, 2023, marks the most significant change to this global benchmark for assets in decades.

The Need for Reform:

In recent years, the Treasury market has experienced periods of volatility and liquidity concerns. The COVID-19 pandemic in 2020 highlighted these vulnerabilities, as liquidity all but evaporated during the initial market panic. This prompted calls for reform, with the SEC identifying the need to increase transparency and reduce counterparty risk.

Central Clearing: The Centerpiece of Reform:

The core of the SEC’s new rules revolves around central clearing. A central clearinghouse acts as the intermediary for every transaction, assuming the role of both buyer and seller. This ensures that trades are completed even if one party defaults, significantly minimizing risk.

The new regulations mandate that a broader range of Treasury transactions now be centrally cleared. This includes cash Treasury transactions as well as repurchase agreements (“repos”), which are short-term loans backed by Treasuries. Additionally, clearing houses must implement stricter risk management practices and maintain separate collateral for their members and their customers.

Phased Implementation:

Recognizing the complexity of implementing such a significant change, the SEC has provided a phased approach. Clearing houses have until March 2025 to comply with the new risk management and asset protection requirements. They will have until December 2025 to begin clearing cash market Treasury transactions and June 2026 for repo transactions. Similarly, members of clearing houses have until December 2025 and June 2026, respectively, to begin clearing these transactions.

Industry Concerns and Potential Impact:

While the SEC’s initiative aims to enhance the safety and stability of the Treasury market, some industry participants have voiced concerns. The primary concern revolves around the potential increase in costs associated with central clearing. Clearing houses charge fees for their services, which could be passed on to market participants. Additionally, the requirement for additional margin, which serves to limit risk, could also lead to higher costs.

Another concern is the potential impact on liquidity. Some critics argue that mandatory clearing could lead to a decrease in liquidity, particularly during times of market stress. This is because central clearing adds another layer of bureaucracy to the transaction process, which could discourage some market participants from trading.

Furthermore, there are concerns about the potential concentration of risk in clearing houses. If a major clearing house were to fail, it could have a devastating impact on the entire financial system. To mitigate this risk, the SEC has implemented stricter capital and risk management requirements for clearing houses.

The Road Ahead:

The implementation of these new regulations will undoubtedly impact the US Treasury market. While the long-term effects remain to be seen, the SEC’s goal is to create a safer and more resilient market for all participants. The phased approach allows for a smoother transition, giving market participants time to adjust to the new requirements.

The success of these reforms will depend on several factors, including the effectiveness of implementation by clearing houses and market participants, the ongoing monitoring and oversight by the SEC, and the overall economic environment. Only time will tell whether these changes will achieve their intended goal of enhancing the stability and efficiency of the US Treasury market.

Additional Considerations:

The SEC’s decision to exempt certain transactions, such as those between broker-dealers and hedge funds, has garnered mixed reactions. Some argue that this creates loopholes and undermines the effectiveness of the reforms. Others contend that it is a necessary concession to address industry concerns and avoid stifling market activity.

The implementation of these new rules will also require close collaboration between the SEC, clearing houses, and market participants. Clear communication and education will be essential to ensuring a smooth transition and maximizing the benefits of these reforms.

Ultimately, the success of these changes will hinge on their ability to strike a delicate balance between enhancing safety and maintaining market efficiency. Only time will tell if this major overhaul of the US Treasury market will ultimately achieve its intended objectives.

Has The Fed Hit a Turning Point?

Posted on by slightbourne@noblecapitalmarkets.com

After two years of aggressive rate hikes to combat inflation, the Federal Reserve is on the cusp of a significant policy shift. This Wednesday’s meeting marks a turning point, with a pause on rate increases and a focus on what lies ahead. While the immediate decision is anticipated, the subtle nuances of the Fed’s statement, economic projections, and Chair Powell’s press conference hold the key to understanding the future trajectory of monetary policy.

A Pause in the Rate Hike Cycle:

The Federal Open Market Committee (FOMC) is virtually certain to hold the benchmark overnight borrowing rate steady at a range of 5.25% to 5.5%. This decision reflects the Fed’s recognition of the recent slowdown in inflation, as evidenced by Tuesday’s Consumer Price Index report showing core inflation at a 4% annual rate. The aggressive rate hikes have had their intended effect, and the Fed is now in a position to assess the impact and determine the next course of action.

Shifting Narrative: From Hiking to Cutting?

While the pause is a significant development, the Fed’s communication will provide further insights into their future plans. Economists anticipate subtle changes in the post-meeting statement, such as dropping the reference to “additional policy firming” and focusing on achieving the 2% inflation target. These changes would signal a shift in the narrative from focusing on rate hikes to considering potential cuts in the future.

The closely watched dot plot, which reflects individual members’ expectations for future interest rates, will also be scrutinized. The removal of the previously indicated rate increase for this year is expected, but the market’s anticipation of rate cuts starting in May 2024 might be perceived as overly aggressive. Most economists believe the Fed will take a more cautious approach, with cuts likely to materialize in the second half of 2024 or later.

Economic Outlook and the Real Rate:

Alongside the policy decision, the Fed will update its projections for economic growth, inflation, and unemployment. While significant changes are not anticipated, these projections will provide valuable information about the current state of the economy and the Fed’s expectations for the future.

The real rate, or the difference between the fed funds rate and inflation, is also a key factor in the Fed’s deliberations. Currently, the real rate stands at 1.8%, significantly above the neutral rate of 0.5%. This high real rate is considered restrictive, meaning it is slowing down economic activity. Chair Powell’s comments will be closely watched for any hints about how the Fed might balance the need to control inflation with the potential for slowing economic growth.

Powell’s Press Conference: Clues for the Future:

The press conference following the meeting will be the most anticipated event of the week. Chair Powell’s remarks will be analyzed for any clues about the Fed’s future plans. While Powell is likely to remain cautious, his comments could provide valuable insights into the Fed’s thinking and their views on the economic outlook.

Markets are eagerly anticipating any indication of a dovish pivot, which could lead to a further surge in equity prices. However, Powell may also address concerns about the recent loosening of financial conditions, emphasizing the Fed’s commitment to achieving their inflation target. Striking a balance between these competing concerns will be a major challenge for Powell and the FOMC.

Looking Ahead: A Cautious Path Forward

The Federal Reserve’s Wednesday meeting marks a significant turning point in their fight against inflation. While the immediate pause in rate hikes is expected, the future trajectory of monetary policy remains uncertain. The Fed will closely monitor the economic data and adjust their policy as needed. The coming months are likely to be characterized by careful consideration and cautious action as the Fed navigates the complex task of balancing inflation control with economic growth.

This article has highlighted the key details of the upcoming Fed meeting and its potential impact on the economy and financial markets. By understanding the nuances of the Fed’s communication and the challenges they face, we can gain a deeper understanding of the future of monetary policy and its implications for businesses, consumers, and investors alike.

Slowing Labor Market Still Relatively Strong Heading into 2024

Posted on by slightbourne@noblecapitalmarkets.com

The latest US jobs data released this week points to a cooling labor market as the country heads into 2024, although conditions remain relatively strong compared to historical averages. The Labor Department reported there were 8.7 million job openings in October, down significantly from 9.4 million in September and the lowest level since March 2021.

While job growth is moderating, the labor market retains a level of resilience as employers appear reluctant to lay off workers en masse despite economic uncertainties. The quits rate held steady in October, indicating many Americans still feel secure enough in their job prospects to leave current positions for better opportunities.

However, the days of workers having their pick of jobs may be over, at least for now. Job openings have declined in most sectors, especially healthcare, finance, and hospitality – fields that had gone on major hiring sprees during the pandemic recovery. This reversal follows a series of steep Fed interest rate hikes aimed at cooling runaway inflation by dampening demand across the economy.

So far the Fed seems to have achieved a soft landing for the job market. Employers added a steady 150,000 jobs in October and unemployment remains low at 3.7%. The most recent data is welcome news for the Fed as it tries to bring down consumer prices without triggering a recession and massive job losses.

Heading into 2024, economists expect monthly job gains will average around 170,000 – still solid but below 2023’s pace when the economy added over 400,000 jobs a month. Wage growth is anticipated to continue easing as well.

While layoffs remain limited for now, companies are taking a more cautious stance on hiring, noted Nela Richardson, chief economist at ADP. “Business leaders are prepared for an economic downturn, but they are not foreseeing the kind of massive job cuts that happened in past downturns,” she said.

Some sectors still hungry for workers

Certain sectors continue urgently hiring even as the broader labor market slows. Industries like healthcare and technology still report hundreds of thousands of open jobs. Despite downsizing at high-profile firms like Amazon, the tech sector remains starved for engineers, developers and AI talent.

Demand still outweighs supply for many skilled roles. “We have around 300,000 open computing jobs today versus an average of 60,000 open computing jobs before the pandemic,” said Allison Scott, Chief Research Officer at KLA.

Restaurants and the wider hospitality industry also plan to bulk up staffing after cutting back earlier this year. American Hotel & Lodging Association CEO Katherine Lugar expects hotels to hire over 700,000 workers in 2024.

Traffic, bookings and travel spending are rebounding. “As we continue working our way back, hiring has picked up,” Lugar noted.

Uncertainties Cloud 2024 Outlook

Economists warn many uncertainties persist around inflation, consumer spending and business sentiment heading into 2024. “The outlook for next year is tough to forecast,” said Oren Klachkin of Oxford Economics. “A lot hinges on whether the Fed can tame inflation without severely harming employment.”

While the Fed intends to keep rates elevated for some time, markets increasingly expect a rate cut in 2024 if inflation continues cooling and economic growth stalls.

For jobseekers and workers, 2024 promises slower but steadier hiring without the wage bidding wars and unprecedented quitting rates seen last year. However, landing a new job may require more effort amid mounting competition.

The days of an ultra-tight labor market may have passed, but for now at least, most employers still remain eager to retain and recruit staff despite the slowing economy. The soft landing continues, but turbulence could still be ahead.

NobleCon19 Economic Perspectives – 2024: Boom or Bust?

Posted on by slightbourne@noblecapitalmarkets.com


The Economic Perspectives Panel’s discussions at the recent NobleCon19 emerging growth conference not only provided valuable insights into various sectors and the broader economic landscape but also served as a comprehensive analysis that captivated the audience’s attention. The panel, featuring a diverse range of experts from industry leaders to economists, offered nuanced perspectives on the challenges that have characterized markets since 2021 and identified potential opportunities, notably emphasizing the potential for undervalued small-cap investments.

The conference kicked off with an Economic Outlook Panel, expertly moderated by Michael Williams, a seasoned News Anchor at WPTV/NBC in West Palm Beach. Williams adeptly steered the discussions through key topics, leveraging the wealth of knowledge from panelists such as Lisa Knutson, COO of E.W. Scripps; Cary Marshall, CFO of Alliance Resource Partners; Jose Torres, Senior Economist at Interactive Brokers; Shanoop Kothari, Co-CEO of LuxUrban Hotels; and Dan Thelen, Managing Director of Small/Mid Caps at Ancora.

A prevailing sentiment among the panelists was the intriguing possibility of 2024 mirroring the economic resurgence experienced in 1990, a year that followed a challenging period. Notably, the consensus was that small-cap investments tend to outperform larger companies during economic recoveries due to their inherent agility and greater potential for growth. The panel expressed cautious optimism, suggesting that the Russell 2000 index might pleasantly surprise investors in the upcoming year.

The discussion also spotlighted sectors of particular interest, with media and advertising taking center stage. The anticipation of heavy political ad spending, estimated at an impressive $10-12 billion leading up to the 2024 election, captured the attention of the panel. Additionally, the oil and gas markets were under scrutiny, with a notable supply response identified as a contributing factor in curbing recent inflation concerns. Projections indicated a forecasted addition of 2.2 million extra barrels per day in the US in 2023, with prices already having experienced a 17% drop from their earlier peak in the year.

Delving into broader economic discussions, the panel highlighted the resilience observed in 2023 to date, supported by a robust labor market and excess pandemic savings fueling consumption. However, the panel cautioned against undue optimism, pointing to expectations of a potential slowdown in 2024, particularly as the Federal Reserve eases interest rates and government spending recedes. The acceptance of a 3-3.5% baseline inflation in the long term was posited as a necessary acknowledgment, notwithstanding the official 2% target.

While acknowledging potential risks in the commercial real estate sector, the panel expressed confidence that forward-thinking companies were actively engaged in cost-cutting measures and prudent inventory management. The overarching expectation was that stock returns would follow a trajectory reminiscent of the positive trends witnessed in 1990, thereby making small-cap investments an attractive prospect for investors keen on capitalizing on emerging opportunities.

Addressing the transformative impact of artificial intelligence (AI) on various facets of business and society, the panel collectively agreed that AI is not just a passing trend but a transformative force that is here to stay. Cary Marshall went as far as declaring, “AI is the electrification of this country.” While recognizing the potential for AI to reduce labor costs, the panelists cautioned that widespread adoption might take longer than initially anticipated. Jose Torres added a nuanced perspective, suggesting that AI could lead to shorter workdays but expressed concerns about the potential erosion of interpersonal skills critical for persuasion and influence.

In conclusion, the panel emphasized the indispensable need for mental toughness, emotion management, and discipline in navigating the inevitable cycles of the markets. Despite the multifaceted challenges, the prevailing sentiment was one of guarded optimism for the road ahead. As markets continue to evolve and present new dynamics, these key takeaways from the Economic Perspectives Panel offer invaluable insights for investors seeking to navigate the intricate landscape of emerging growth and economic recovery, providing a robust foundation for strategic decision-making in the ever-changing financial environment.