Another market week, with little change, is reflected in the following table:
| WEEK OF | 01/20/23 | ||||
| CLOSING PRICES | GAIN/LOSS | ||||
| ASSETS | 7/26/2022 | Last Week | This Week | Week | From 7/26 |
| DJIA | $31,764.00 | $34,303.00 | $33,204.00 | -3.2% | 4.5% |
| GOLD (GLD) | $160.00 | $178.76 | $179.29 | 0.3% | 12.1% |
| TECH (QQQ) | $294.30 | $280.97 | $282.68 | 0.6% | -3.9% |
| BONDS (TLT | $116.84 | $106.75 | $106.20 | -0.5% | -9.1% |
For the last week, Tech had a slight bounce and the Dow Jones showed weakness. Bonds continued to drift downward while Gold continued a slow rise.
It is a fool’s errand to try to explain market movements, especially in the short term. Nevertheless, the relationship between the Dow and Tech stocks this week suggests that some investors believe the Fed may be nearing the end of its rate-hiking schedule. While that might be true, economic principles suggest more pain is coming. The optimism the Fed created in the prior economic cycle encouraged many businesses to engage in activities that are likely unsustainable with higher interest rates. Even if the Fed slows down, it is likely that these activities will prove to be unwise. Look for this evidence in layoffs and possible plant closings.
To predict Fed policy and action requires more than economic theory. The Fed is a political institution more than an economic one. Its “independence” and survival depend on keeping the political class happy. To the extent proper economics can be recognized and practiced within this constraint, it likely will be, assuming the Fed does not misread the data.
It is difficult to know what the Fed does next. Any prediction depends on political considerations as much as economic ones.
