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Financial Pros Top Consumer Staples Searches December
Fed Meeting Minutes Provide Clarity
Yesterday’s release of the Fed minutes hit markets, but they really shouldn’t have.
The Fed noted the strong economy and pressing inflation led them to conclude they may need to hike rates faster than anticipated.
We already know the Fed will change its mind based on the data that comes out.
And as we note in our main story, while supply chain pressures might be leveling off, they aren’t necessarily improving.
Plus, demand remains well in excess of supply.
So yes, if our economy is strong, which by many measures it is, why wouldn’t they raise rates to tamp down inflation? Especially with unemployment so low.
A New Supply Chain Pressure Index
Supply chain issues continue to plague our ports.
But the Fed says things might be getting better.
Supply Chain Pressure Index
In an effort to measure the impact of supply chain disruptions, the Federal Reserve created a new Supply Chain Pressure Index.
This metric takes into account two major components:
The Fed then attempts to control for supply-side hiccups on the PMI data by removing new orders, which are seen as a gauge for demand.
The graphs above show that although current problems are worse than recent history by a wide margin, they appear to be topping out.
Basic math says that we’re about to lap many of the increases, which means we judge inflation against a higher baseline.
That doesn’t mean we can’t hit 3% or more. But makes +5% unlikely.
Plus, we’ve started to see some food costs come down.
And the removal of steel and aluminum tariffs on Eastern Europe that kicked in Jan. 1st should help.
However, the infamous Port of LA backlog has yet to clear. Current stats put the vessel count at 126.
Additionally, many companies planned to implement price increases at the start of the year on everything from mustard to motorcars.
The Bottom Line: While inflation isn’t likely to continue to accelerate, it remains a real problem.
Price increases will still take the better part of the year before they make their way to consumers.
However, we expect consumer goods companies like Kraft-Heinz (KHC), Clorox (CLX), and the like to benefit from those same price increases as well as market rotation into ‘safer’ stocks.
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