The Markets – December 28, 2023

If all you wanted for Christmas was two percent inflation, you’re in luck!

Barring unforeseen events, it appears the United States Federal Reserve (Fed) is on the cusp of accomplishing a feat many thought impossible – reducing inflation without causing a recession.

From March 2022 to July 2023, the Fed raised the federal funds rate 5.25 percent – the most aggressive increases in decades, reported Felix Richter of Statista. There was considerable skepticism about the Fed’s ability to bring inflation down to its 2 percent target, especially as prices continued to rise, with inflation peaking at 9.1 percent annualized in June of 2022.

As the nation headed into 2023, economists anticipated that rapid rate hikes would lead the U.S. into recession. They were wrong. Last week, the personal consumption expenditures (PCE) index showed prices dropping from October to November. Headline inflation was:

• -0.1 percent from October to November 2023,
• +1.9 percent over the last six months, and
• +2.6 percent over the last 12 months.

While rising rates drove inflation down, the U.S. economy continued to grow. So far this year, economic growth (after inflation) was 2.2 percent in the first quarter, 2.1 percent in the second quarter, and 4.9 percent in the third quarter of 2023. The Atlanta Federal Reserve’s GDPNow forecast suggests economic growth will remain in positive territory, up 2.3 percent, in the final quarter of the year.

Falling prices lifted consumers’ spirits. Consumer sentiment improved almost 14 percent from November into December, according to the University of Michigan’s Consumer Sentiment Survey. “All five index components rose this month, which has only occurred in 10% of readings since 1978. Expected business conditions surged over 25% for both the short and long run. All age, income, education, geographic, and political identification groups saw gains in sentiment this month,” reported Surveys of Consumers Director Joanne Hsu.

Financial markets welcomed the news. “…the S&P 500 notched an eight-week winning streak – the longest in more than five years. The Nasdaq 100 and a global gauge of equities logged equally lengthy runs – for the tech-heavy Nasdaq it was the longest since July 2021. U.S. bonds booked a fourth-straight week of gains – their best streak since March,” reported Cristin Flanagan of Bloomberg.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

BORN IN THE USA: NOTABLE INVENTIONS FROM 2023. From Ben Franklin’s bifocals to Maria Beasley’s barrel-making machines and life raft to Jamie Siminoff’s video doorbell, the United States has been a leader in invention and innovation for a long time. As we head into the end of year, here are a few of the top inventions and innovations for 2023.

Carbon removal and electrolysis plants. Popular Science (PopSci) awarded the grand prize in its Engineering category to a U.S. company that has developed a system for capturing carbon dioxide “directly from the ocean, and simultaneously [producing] green hydrogen that can be sold or used to help trap even more emissions.” It has pilot plants operating in Los Angeles and Singapore.

Inflatable stand-up paddle boards. In the Sports and Outdoor category, an inflatable paddle board “that’s up to three times more rigid than other inflatables and considerably lighter weight and less bulky than traditional hard boards” got the PopSci stamp of recognition. The board maker indicated the military may use its patented composite material in unmanned spacecraft and submersibles.

An accessible modular gaming controller. Videogaming is a popular pastime enjoyed by almost a third of people in the world. Now, a customizable controller will open the opportunity to more people with physical challenges. The controller, which was recognized by Time Magazine and PopSci, “can interface with many popular third-party accessibility devices via four built-in 3.5mm aux ports. Out of the box, the controllers are arranged like daisies; the buttons are like petals, and the players can arrange them however they like.”

Artificial Intelligence (AI) wildfire detectors. Wildfires have become a serious threat in many countries. Pranav Dixit of Time reported that the University of California, San Diego, has been developing a program that trains AI to detect smoke and recognize signs of a possible fire using a network of cameras in forests throughout California. “When the system spots something, it alerts the local fire department via text message. In the first two months, the system had correctly identified 77 fires before any 911 calls came in.”

Academic research suggests that invention and innovation affect economic growth and the profitability of innovative companies. “…spikes in patent quality successfully predicted watershed inventions as well as individual firm profits, suggesting that innovation might indeed be key to understanding the last two centuries of economic growth,” wrote Bryan Kelly, Dimitris Papanikolaou, Amit Seru, and Matt Taddy in Northwestern University’s KelloggInsight.

Weekly Focus – Think About It

“Anyone can become an inventor as long as they keep an open and inquiring mind and never overlook the possible significance of an accident or apparent failure.”

—Patsy O’Connell Sherman, chemistBest regards,

Best regards,

Daniel J. Murphy, CFP®
Murphy Wealth Management Group
60 Merritt Blvd., Suite 106
Fishkill, NY 12524

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please call with their information so that we can get their permission.
Securities offered through LPL Financial
Member FINRA/SIPC
Investment Advice offered through Murphy Wealth Management Group, INC, a Registered Investment Advisor and separate entity from LPL Financial.