So far this year, the market rally has been impressive coming out of 2022’s sell-off. Moderating inflation data has been a key market driver over the past several months. The inflation rate fell to 6.5% in December but remains far above the 2% target range.
Economists expect headline inflation to fall from 6.5% to 6.2% in the next Consumer Price Index (CPI) reading. As inflation falls closer to the Fed’s target and as earnings revisions show signs of bottoming, markets will likely march toward an economic recovery.
Given the optimistic outlook on inflation and the labor market, analysts do not expect markets to give up all the recent gains. However, comments from Fed officials regarding interest rates staying higher for longer than expected suggests that a short recession is likely in 2023. Further, a negative surprise from the next inflation reading might be met with outsized volatility.
Meanwhile, such periods of volatility come around as an opportunity to add quality investments at better prices to one’s portfolio. To that end, investors could lean on fundamentally sound dividend-paying stocks like…
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