Weekly Market Insights – January 17, 2023

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Stocks rallied last week thanks to fresh confirmation of inflation’s cooling trend and growing optimism that an inflation slowdown may provide the Fed with space to ease up on future rate hikes.

The Dow Jones Industrial Average gained 2.00%, while the Standard & Poor’s 500 advanced 2.67%. The Nasdaq Composite index surged 4.82% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, jumped 3.32%.1,2,3

IMPROVING SENTIMENT
Investor sentiment came into the new year weighed down by recession fears and concerns that Fed rate hikes may “go higher for longer.” Last week a different narrative emerged. Sustained declines in inflation, a rate hike cycle nearing an end, and a resilient economy that may avoid recession resulted in a broad-based rally.

Moderating inflation was evident in the Consumer Price Index (CPI) report released on Thursday, which, in combination with a strong labor report the previous Friday, gave investors confidence that the environment for stocks had improved. Stocks extended their gains to end the week as a few money center banks kicked off a new earnings season with upbeat reports.
INFLATION’S COOLING TREND
December’s CPI report showed a 0.1% decline in prices from November and a 6.5% increase from a year ago. It was the sixth-consecutive month of decelerating year-over-year increases. Core prices (excludes food and energy) slowed to 5.7%, a decline from the previous month’s 6.0% year-over-year rise. For the last three months, core prices have risen at an annualized rate of 3.1%–the slowest pace in over a year.4
Falling gasoline prices (-9.4%) accounted for most of the monthly decline in the CPI. Used car prices (-2.5%) were another bright spot.5

THIS WEEK: KEY ECONOMIC DATA
Wednesday: Producer Price Index (PPI). Retail Sales. Industrial Production.
Thursday: Housing Starts. Jobless Claims.
Friday: Existing Home Sales.
Source: Econoday, January 13, 2023

The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

THIS WEEK: COMPANIES REPORTING EARNINGS
Tuesday: The Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS), The Charles Schwab Corporation (SCHW).
Wednesday: United Airlines Holdings, Inc. (UAL), The PNC Financial Services Group, Inc. (PNC), Prologis, Inc. (PLD).
Thursday: Netflix, Inc. (NFLX), The Procter & Gamble Company (PG).
Friday: Schlumberger Limited (SLB), PPG Industries, Inc. (PPG).
Source: Zacks, January 13, 2023

Footnotes And Sources
1. The Wall Street Journal, January 13, 2023
2. The Wall Street Journal, January 13, 2023
3. The Wall Street Journal, January 13, 2023
4. The Wall Street Journal, January 12, 2023

Do I Need a Traditional or Roth Thrift Savings Plan (TSP)?

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If you’re a government worker with a Thrift Savings Plan (TSP) from your employer, congratulations! With low management fees to matching contributions, you have one of the best investing tools available. You can prepare well for a comfortable retirement by contributing to your account. However, you have a choice: deposit to a traditional or Roth TSP. Your selection will determine when you pay income tax on contributions and earnings. Here’s a breakdown of the key differences but you can also work with a financial advisor to help you choose the right investments for your situation.

What Is a Thrift Savings Plan (TSP)?
A Thrift Savings Plan (TSP) is an investment account that government employees, including military members, receive as a benefit. TSPs have minimal administrative costs and allow participants to contribute pre- or post-tax dollars. Click HERE to read more.

SECURE Act 2.0” May Impact Your TSP

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The “SECURE Act 2.0” would change the age for required minimum distributions (RMD) from the TSP and require catch-up contributions to be Roth contributions.

Most readers and investors in the Thrift Savings Plan (TSP) have probably never heard of the Securing a Strong Retirement Act of 2021 (H.R. 2954), dubbed the “SECURE Act 2.0.” But, if it passes into law, it contains significant changes for TSP investors and the age for starting a required minimum distribution (RMD).

Predicting whether a complex bill like HR 2954 will become law is difficult at best. In this case, the bill does have 98 Cosponsors—51 Democrats and 47 Republicans. Moreover, the bill is likely to be considered in the House next week. In short, there is a reasonable chance that this bill will become a new law.

Summary of the SECURE Act 2.0

This bill makes changes to employer-sponsored retirement plans, including the TSP. These changes include increasing the age at which participants are required to begin making a required minimum distribution (RMD). Click HERE to read more.

2022 in Review: 2023 Federal Pay Raise, Federal Employee Vaccine Mandate and More

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2023 Federal Pay Raise is Largest in 20 Years

Federal employees are getting the largest pay raise in about 20 years in 2023. Many were anxious to find out what the pay raise in 2023 would be in light of rampant inflation in 2022 and a sharp increase in 2023 FEHB premiums.

Many FedSmith readers expressed frustration that the pay raise was not larger given the decline in our quality of life the country has seen this year with rapidly rising costs on everything from food to electricity, but the reality is that the pay raise is technically not based on inflation since the federal pay raise each year is determined by a political process.  Click HERE to find out more.

Dismal 2022 TSP Performance: One Fund Down 26% for the Year

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2022 TSP fund performance was dismal. One TSP stock fund was down 26%. What happened after the last significant yearly loss?

2022 TSP Fund Performance Went from Bad to Worse.

As 2022 comes to a close, many Thrift Savings Plan (TSP) investors will be glad to see this year come to an end as it has put a dent in the overall performance of the TSP funds. The year did not start off well. Click HERE for full article.