Inflation Simmers Down – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

The market finished last week’s session with the Dow Jones Industrial Average soaring nearly 700 points, while the S&P 500 and Nasdaq Composite gained 2.3% and 2.6% respectively. It marked the first week of 2023 with increases in the indices. A big factor in the positiveness of the market was the Labor Department’s monthly report. As data showed less jobs added, and a definite thawing of wage increases, all affecting the Fed, as investors and traders look to a ‘backing down’ of interest hikes. The hourly wage earnings number was less than expected, said Michael Arone, chief investment strategist at State Street Global Advisors. “There was fear that inflation would remain hot.”

Monday’s opening was dogged by worries of the Fed and what the increased amount would be. Many analysts and financial ‘gurus’ see some possibility of a quarter percent rate hike, while the majority feel that a half percent will be the number. Worldwide markets, influenced heavily by the direction of the inflation rate here in the U.S.have been reacting in favorable fashion. As the week opened Monday and Tuesday, investor anticipation is high, as curiosity abounds regarding the announced CPI rate. Early projections are that the inflation rate will come in near 6.5% a bit down from November’s rate. For certain the market will react, always influenced by the monthly number. This week several ‘Big Banks’ are due to report quarterly earnings, with much anticipation as they are a solid market barometer on economic conditions now and the future.

Thursday’s announcement of the inflation rate by the U.S. The Department of Labor is 6.5% down by 0.1% for December. Stocks rose very slightly after the release, as traders and investors have ‘built in’ the ‘number.’ Now the anxiety continues as tension mounts as to what the Federal Reserve rate hike will be. Mr. Powell has reiterated many times “that I will do whatever is necessary to get the job done.”

The biggest component of the CPI is shelter, both general housing and rental. While shelter forged ahead, gasoline prices fell 9% in December, negating the powerful price increases of the housing market. Consumer goods, such as food stuffs, household staples, are accelerating monthly as the average costs have risen from near $300 a month, pre-pandemic to near $500, and on a serious on-going upswing.

The production of U.S. natural gas and oil is racing to record highs. Oil fields are abuzz with new exploration, fracking existing wells and discovering new basins. Older producing wells are being ‘re-worked’ to extract more oil. Natural gas demand has pushed production to all time highs as the U.S. has more than stepped up to insure adequate supplies are available to the European nations shorted by Russian natural gas (The Russian Boycott). The U.S. is on line to double exports of LNG by 2030, if not sooner according to S&P Global Commodity Insights. In 2022, natural gas hit $9, presently hovered back to the $4 range.

Investors and traders finished off a very tough year in December, with indices suffering some of the worst losses going back to 2008. Nearly all mutual funds, ETFs, and many technology stocks finished negatively. Many financial economists, analysts and advisors are predicting the market could drop even more in 2023. Talk of recession is on the lips of a majority of investors…..only time is an amazing ‘predictor.’

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Randall W. Forsyth, Lead Writer of…UP & DOWN WALL STREET, Barron’s “The house speaker fight is merely the preliminary bout. The main event will likely take place later this year, as congress again gets ready to rumble. Or maybe bumble.”

Kristaline Georgieva, IMF Managing Director, Barron’s “We expect one-third of the world economy to be in recession. Why? Because the three big economies–the U.S., EU, China–are slowing down simultaneously.”

Dave Bujnowski, Portfolio Manager, Baillie Gifford, Barron’s “There’s a temptation to define growth by expansion of a system, economic or otherwise, but I have always associated growth with change. Change and dynamism lead to growth opportunities as much as expansion itself.

John Arnold, Billionaire philanthropist and former hedge fund manager, Barron’s “The multidecade trend of globalization, for all its harms, created the capacity for massive monetary and fiscal stimulus without inflation,” Arnold tells Barron’s. “I don’t think there’s an appreciation, especially from the political system, of how the reversal of this trend has the opposite effect.”