Weekly Investment Strategy

Review the latest Weekly Headings by CIO Larry Adam.

Key Takeaways

  • Easing supply chains could allow for a more patient Fed
  • Omicron doesn’t stop economy from adding jobs
  • Higher gas prices a downside risk to our economic outlook

Punxsutawney Phil—the most famous groundhog—saw his shadow! So for those of us braving colder temperatures, we may have six more weeks of winter to go. Fortunately, historic weather data doesn’t give this furry forecaster much predictive power. But if there is one thing investors can count on over the next six weeks, it is that the Fed will be underground assessing the economic outlook ahead of the critical March Federal Open Market Committee Meeting (March 15-16). With Chair Powell’s latest commentary causing market volatility to come out of hibernation, the upcoming economic data releases will be all the more critical in discerning how the Fed’s economic forecasts and policy adjustments may shift. Below is a list of developments that will be on our radar without a shadow of doubt:

  • Inflation May Spring Higher | The January and February readings for the Consumer Price Index and Producer Price Index will be released before the Fed’s next meeting, and the minutes from the previous meeting may give investors further insights to how the results may frame the policy discussions come March. The consensus estimates for top-line inflation (January’s Consumer Price Index released next Thursday, February 10) reflect that we may not have reached the peak just yet (+7.3% year-over-year versus +7.0% in December), and whether you listen to the nightly news or have seen headlines from company earnings reports, the supply chain disruptions are front and center. But despite the broad-based grievances on staffing shortages, input availability, and transportation costs, there are signs that inflation pressures may be starting to ease. In looking at the various subcomponents of the ISM Manufacturing Index, backlogs are down in five of the last six months, new orders fell for the second straight month and delivery times declined for a third consecutive month. It is also worth noting that General Motors expects “ongoing semiconductor availability improvements throughout 2022” and new car prices saw their first decline in ten months. While it will take time for these supply chains to unfreeze, any noticeable improvement over the next several months could allow the Fed to be more patient in tightening monetary policy as we progress into the year.