12/11/2022

12/11/22 Newsletter – Are You Crunching These Numbers?

Stocks finished lower Friday, with all the major averages posting losses for the week as worries persisted over continued rate hikes…

Let’s run the numbers real fast!

The Dow Jones Industrial Average lost 305.02 points, or 0.9%, to close at 33,476.46. 

The S&P 500 dropped 0.73% to end at 3,934.38.

And the Nasdaq Composite fell 0.7% to finish at 11,004.62.

But on a weekly basis…

The Dow fell 2.77% to post its worst week since September. 

The S&P tumbled 3.37%.

And the Nasdaq dropped 3.99%.

(Keep reading to see why we’re not scared one bit…)

Friday’s moves came after November’s producer price index (PPI) showed higher-than-expected wholesale prices, which rose 0.3% last month (they were expecting 0.2%) and 7.4% over the previous year. 

But what does that even mean?

Basically, it costs producers / manufacturers 7.4% more this year to make or produce the same thing(s) as it did this time a year ago…

What Is the Producer Price Index (PPI)?

The Producer Price Index (PPI) measures the average change over time in the prices domestic producers receive for their output.

It is a measure of inflation at the wholesale level that is compiled from thousands of indexes measuring producer prices by industry and product category. 

The index is published monthly by the U.S. Bureau of Labor Statistics (BLS). 

The PPI measures inflation (or, much less commonly, deflation) from the perspective of the product manufacturer or service supplier. 

The PPI is different from the consumer price index (CPI), which measures the changes in the price of goods and services paid by consumers.

What Is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. 

The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending.

It’s the most widely used measure of inflation, closely followed by policymakers, financial markets, businesses, and consumers.

The widely quoted CPI is based on an index covering 93% of the U.S. population, while a related index covering wage earners and clerical workers is used for cost-of-living adjustments to federal benefits.

The CPI is based on about 94,000 price quotes collected monthly from some 23,000 retail and service establishments as well as 43,000 rental housing units.

It’s kind of a big deal so you should be paying close attention to this report.

The next CPI report is being released this Tuesday, December 13th, 2022 at 8:30 AM Wall Street time and it will include data from November.. 

The previous CPI report came in at 6.3%

But the “estimate” for this coming report is a little less, coming in at 6.1%. 

(So keep your eye out for this report)

Do you suffer from FOMO or FOMC?

If you’ve spent 5 minutes within the last 5 years watching, reading, or listening to any commentary from the mainstream financial media then you should be well versed in what “FOMO” is and what it stands for.

But for the uninitiated, let me break it down for you.

FOMO is an acronym that stands for “Fear of Missing Out”  and even though it is a relatively new addition to the English language –  it’s one that is intrinsic to our day-to-day lives. 

A true phenomenon of the modern digital age, FOMO affects almost 70% of millennials, but it can also have a significant bearing upon trading practices.

For example, the feeling of missing out could lead to the entering of trades without enough thought or closing trades at inopportune times because it’s what others seem to be doing. 

FOMO can even cause traders to risk too much capital due to a lack of research, or the need to follow the herd.

And as far as the herd goes… 

They will be eagerly awaiting the results from the FOMC meeting on Wednesday, December 14th, 2022.

Now what the heck does FOMC stand for?

The term Federal Open Market Committee (FOMC) refers to the branch of the Federal Reserve System that determines the direction of monetary policy in the United States by directing open market operations. 

The committee is made up of 12 members, including seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining 11 Reserve Bank presidents, who serve on a rotating basis.

The 12 members of the FOMC meet eight times a year to discuss whether there should be any changes to near-term monetary policy. 

A vote to change policy would result in either buying or selling U.S. government securities on the open market to promote the growth of the national economy. 

The FOMC chair is also the chair of the Board of Governors. The current makeup of the board is as follows:

The chair is Jerome Powell, who was sworn in for a second four-year term on May 23, 2022. He began his first term in this role in February 2018.

The vice-chair of the FOMC is Lael Brainard. She was also sworn into the position on May 23, 2022, for a full four-year term. She joined the board in June 2014.

Other Federal Reserve Board members include Michelle Bowman, Michael Barr, Lisa Cook, Philip Jefferson, and Christopher Waller.

Hawks vs Doves

Committee members are typically categorized as “hawks” favoring tighter monetary policies, “doves” who favor stimulus, or centrists/moderates who are somewhere in between.

With the next Fed meeting just a few days away, it’s time for a quick summary of what to expect. 

The two-day meeting is scheduled to start on Tuesday, December 13th with the statement released at 2:00pm ET on Wednesday, December 14th. At 2:30pm, Fed Chair Powell’s post-meeting press conference will take place. 

There will be an update to the Fed’s Summary of Economic Projections (SEP) at this meeting.

Expectations are high that the Fed will step down their rate hikes to 50 bps. 

That would raise the target federal funds rate to 4.25%-4.50%. 

The target federal funds rate would be at its highest level since late 2007 when the Fed started to cut rates from its 5.25% peak.

(This is why we’re not scared…)

At the Fed meeting, attention will focus on what the Fed signals for 2023. 

But if you can’t wait until 2023 and you want something you can sink your teeth into right now, you’re in luck…

Because we have been hard at work uncovering what could be the next big stock play for you.

In fact, we just identified our next stock play and will be bringing it to you very shortly.

Get ready.

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