In a widely anticipated move Federal Reserve Chairman Powell announced the slowdown in the magnitude of rate hikes to .25%. While the markets were waiting impatiently for a signal that the Federal Reserve will lower rates later in the year, they did not receive this gratification. Chairman Powell is right to be cautious. While early signals do suggest the desired impact of raising rates is leading to disinflation, it is still too early to say for sure. The Federal Reserve's caution and prudence is warranted and a signal to the markets that they are trying to get this right without unnecessarily sending the economy into recession. A wait and see mode makes sense.

Today's unemployment report only underscores this fact. The Bureau of Labour reported that the unemployment rate fell to 3.4% and the economy added 517,000 jobs exceeding the most optimistic forecasts. While some debate how accurate these numbers are, the labour market remains strong, the strongest it has been since 1969.

This presents challenging issues for the Federal Reserve as part of their desired impact from rate hikes is a weakening in the labour market to stifle wage inflation. The markets are having to digest conflicting data and discern the future. January wage growth for example has cooled with average earnings dropping from 4.8% in December to 4.4% in January. Until the signs of the wage push inflation cooling are more clearcut, the Federal Reserve will continue to wait, watch and act.

How useful is the Advance Decline (A/D) indicator and what can it tell us? The A/D indicator is a breadth indicator and signal used for determining a shift in the directional trend of aggregate markets. It measures the difference between the number of advancing and declining stocks on a daily basis. In doing so, it can provide insight into market sentiment. A rising line signals the cumulative strength of rising stocks in proportion to declining stocks and conversely a falling trend line shows the preponderance of stocks falling in proportion to stocks that are rising. As with every signal there are nuances to understanding the data outputs of the signal itself which in turn can require evaluation in combination with other technical indicators.

As mentioned, when an index is rallying and the A/D line is rising it reflects strong participation among companies in the trend. However, if the index is rising but the A/D line is rising only marginally or remains unchanged, it could indicate that the rally in the index is due to the rise of only a small number of market leaders. Conversely, if indexes are falling but the A/D line is steady or even rising, it can indicate that fewer stocks in aggregate are declining.

On Thursday January 12th 2023, the ratio of advancing to declining stocks on the NYSE closed above 1.97. The last time this happened was in June 2020, when stocks were rallying out of the COVID-induced bear market. This is the 25th time that this has occurred in the last 75 years. In all 24 prior instances the stock market was higher 12 months later. There are no guarrantees of course that the same will happen in this instance. History can signal probabilities but every market cycle and time in history has its own unique attributes.

Happy New Year! We hope that you enjoyed the festive season and time with family. As we begin another year it is worth reflecting on our good fortune that we are living in an era of remarkable advances in health care that have prolonged the average lifetime. In 1875, the average life expectancy in the USA was 40 years old. By 1960 (85 years later) the average life expectancy in the USA was 69.77years and in 2019, it was 78.79 years. Life expectancy has almost doubled since 1875. It has fallen since 2020 due to the increase in mortality rate resulting from COVID and currently stands at 77.28 years in 2022. Men typically on average have a lesser lifespan reaching approximately 74 years of age whereas women on average live to about 80 years. As medicine advances at an exponential rate with the convergence of quantum computing, biotechnology, genomics, regenerative medicine, research and many other related disciplines, the pace at which healthcare is advancing is accelerating and we can expect the average life expectancy to keep rising alongside these advances.

This is, of course good news for human beings but it also means we need to plan for living longer. As we live through the great inflation since the advent of COVID and a challenging bear market, it's important to revisit retirement plans on a regular basis and re-calibrate if needed to realize the retirement you are planning for.

An important factor that will influence your retirement income are social security benefits and the age you start claiming them.It is important to understand the financial implications  of when you choose to claim social security. For example, it is estimated that overall benefits, on average, will be approximately 76% higher (inflation adjusted) if you start claiming social secuirity at the age of 70 versus the age of 62. That may be counter-intuitive but when you factor in the early-retirement reduction penalty and conversely the delayed retirement credits (DCR's) that increase your retirement by 8% per annum for each year through the age of 70, this is not the case. Only 7% of all retirees wait to claim social security until the age of 70 despite this.

Has the inflation tide turned? Core CPI was forecast to increase 0.3% month-over-month and 6.1% for the year but came in recently at 0.2% and 6% respectively. Food on the other hand (which is not part of Core CPI) has continued to rise as have the costs of shelter.

In the bond market, long-term Treasury yields are starting to fall. Analysts are projecting that these will continue to fall into 2023. The 10-Year Treasury yield topped out at 4.3% a few weeks ago and finished at 3.49% a few days ago, down more than 80 basis points from its peak.

Also of note: The U.S. ISM Manufacturing PMI has declined over the last few months into territory below 50 which signals falling demand. Each time the index has fallen below 50 - over the past 50 years - the 10-Year Treasury yield has proceeded to fall over the following few quarters, notably this also occurred during the era of high inflation of the 1970's. Falling treasury yields have an inverse correlation in the past with higher risk beta stocks rising

It is interesting and worth noting that since World War II, stocks have not sold off in the year folowing a midterm election. There are no guarrantees that history will repeat itself but in the 20 midterm elections since World War II, stocks have risen the following year between 5% - 32% depending on the year. In 14 out of the 20 years following the mid-term election cycles the markets have risen by more that 10%.

Why is this? "Post-election outperformance is often driven by the market's expectation of increased government spending from a new Congress," says Liz Ann Sonders, Schwab's chief investment strategist. "But an additional infusion of funds seems unlikely this year, given the government's historic levels of spending and stimulus in response to the pandemic" 

Other perspectives say that equities tend to disappoint in the years before the election and that once anxiety about potential policy changes post-election subsde that there is a reversion to the mean.