January 16, 2023

Weekly Market Update

By Michael McKeown, CFA, CPA - Chief Investment Officer

Weekly Market Update

Chart of the Week

Inflation’s high during this cycle was in June 2022 at 9%. The subsequent six-month annualized change in inflation was 1.9%. That is quite a drop! The increase in inflation caused valuations to fall across equity markets. The trailing P/E ratio for U.S. small caps is now at 14, near the fair value level with inflation at 6.5% over the last year. If inflation continues to come down, the price-to-earnings (P/E) ratio in small caps could move higher. Small caps look like an interesting area for investors to consider allocating capital. On the chart below, that would be an intersection moving up and to the left.

Inflation vs PE Multiples - Small Caps

What We’re Reading

The Art and Science of Spending Money – Morgan Housel
Cyclical Outlook Key Takeaways: Strained Markets, Strong Bonds – PIMCO
Where 27 firms Forecast Home Prices for 2023 – Fortune
Byron Wien is back with his 10 Surprises of 2023 – Blackstone

Podcast of the Week

The Chances of a U.S. Soft Landing – Odd Lots

The Past Week

Last week the focus was on inflation, which surprised to the downside with a monthly decline of 0.1%. The price data continues to move in the right direction, and while the Federal Reserve is not ready to declare victory the markets celebrated the news. Another positive datapoint was consumer confidence coming in higher than expected.

The Past Week

The Week Ahead

This week we will see how consumers spending changed this past holiday season. Markets will also get a gauge of the housing market’s slowdown with reports on new starts and existing home sales.

The Week Ahead

Thank you for reading.

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