Will higher inflation in December affect advisors’ 2024 outlooks?
The December inflation report came in slightly hot. So what should financial advisors do if it really catches fire?
Last month’s consumer price index surprised to the upside month-over-month, up 0.3% versus the 0.1% rise in November, and it also came in a tad higher than the Wall Street consensus of 0.2%.
Over the last 12 months, the all-items index increased 3.4% before seasonal adjustment, according to the Bureau of Labor Statistics. In the year-over-year numbers, core CPI also came in a little north of forecast, up 3.9% versus 3.8%, but still less than last month’s increase of 4%.
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, says the biggest takeaway for investors from the December inflation report is that the Federal Reserve is done raising rates, not the timing or number of cuts. The general belief on Wall Street is that the Fed came into 2024 expecting to cut three times, even though markets were pricing in twice as many in Zaccarelli’s estimation.
“As long as the economy stays out of recession, the market will keep moving higher and we will have a positive 2024, even if the gains aren’t as exuberant as last year,” he said. “But if we do slide into the waiting-for-Godot recession, then the stock market could drop 20% or more, so that is the most important issue, not when or how many times the Fed ends up cutting in during this normalization phase.”
Zaccarelli’s base case is that the economy won’t slide into a recession this year because unemployment is too low and consumer spending is keeping the economy going strong. However, for advisors with clients overly worried about a recession, he suggests concentrating on companies with “strong balance sheets, good management teams and the
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