I’ve been gone for the last 3 weeks, enjoying time with our newest daughter, Blaire. She was born August 21, at a solid 8lbs 11oz, and has truly been a blessing for our family. Mom is doing great as well, and its been especially fun watching our 2 year old, Fallon, interact with her as a big sister.
After her birth, we stayed at the hospital for a couple of nights (standard procedure). There wasn’t a ton to do when mom and baby (thankfully) were resting, so I had CNBC on in the background to maintain some connection with my job while away. I will typically watch CNBC in small doses like in the morning but having it on all day was illuminating. It’s just watching the talking heads regurgitate the same narrative in as many ways as they can. So, what are those narratives.
Basically, the entirety of investing in 2023 can be summed up by debating what the Federal Reserve is going to do in response to inflation. Last year the Fed started raising interest rates as inflation ran hot. The idea is that high rates will restrict borrowing, and therefore spending, which will slow down businesses, which will cause some unemployment, and voila…inflation comes down. Obviously, there’s nuance there, but that’s the gist.
This year we are at an awkward spot where inflation has come down significantly, but the Fed has continued to raise rates and signaled that more hikes are coming. The signaling is by design. The Fed openly tells the public it’s thinking, such as how it feels about current and future inflation, and what data points leads it to believe so. This helps set expectations and allows markets to sort of front run what they are likely to do in the future.
Here’s where things get a little frustrating as an investor. Inflation has come down faster than markets expected. This is good, but the Fed is still concerned that if they start lowering rates now, inflation could rise again. Fine. I don’t necessarily agree, but reasonable people could come to that conclusion. What’s frustrating is watching the people on CNBC debate if it’s “good” that unemployment is near all time lows. Or if it’s “good” that wages rose more than inflation. Or if it’s “good” that consumer spending has been better than expected.
If you are reading this and wondering, “why would any of those things not be good?”, that’s my point. These are objectively good things. Republicans and Democrats alike would prefer that you have a job and spend your money. The reason they debate if it’s “good” is because it means that the Fed hasn’t had their intended effect of lowering inflation with a slowing economy, and therefore more rate hikes might be coming. At some point they will have their intended effect, and the market doesn’t like this.
So good news is actually bad news for markets. Strong payroll numbers come out…stocks are down. Retail sales fall…stocks rise. Unfortunately, this isn’t a new phenomenon. The good news is bad news narrative has been going on for years. There’s probably a message in there about the market’s over reliance on Fed policy, but that’s for another post.
This isn’t CNBC’s fault necessarily. They are just covering the narratives as they are. But I do hope we can eventually move to a point where we judge the economy, market, etc. on its own merit, versus in relation to how the Fed will react to it.
That being said, you invest in the market as it is, not as you want it to be. It’s important to understand that. Bemoaning the Feds weight on the market doesn’t make it go away. But it does make it a whole lot less interesting to watch on TV!
Anyways, this post was just a cover to post some pictures of the growing family. Back to work!
