Early indications suggest the U.S. economy is performing well this year, following solid growth with a slight dip in late 2022. The Commerce Department revealed that Gross Domestic Product (GDP) rose at an annual rate of 2.7% in the fourth quarter, down from the previous estimate of 2.9% growth, with slower consumer spending late last year cited as the primary cause for the dip. Nonetheless, recent data points to growth, with hiring and spending surging in January. Earnings reports will play into the direction the economy takes but there is a growing consensus that stocks could rise on a tailwind later this year.
The unemployment rate fell to a 53-year low, and retail sales also jumped by 3% in the same month. Business activity, particularly in the services sector, increased in February. This has lessened concerns that the economy will slip into recession early this year. However, this recent boost may support consumer demand and add upward pressure on prices. Inflation's decline late last year stopped in January, though the inflation rate edged down to 6.4% from 6.5% in December, according to the Labor Department's consumer-price index.
While some remain cautious, these trends could mean the Federal Reserve will continue to raise rates to combat inflation. This could affect the value of individual investments in stocks, 401(k) investments, and IRAs.
Here are three key takeaways for clients of an investment advisory firm to keep in mind:
1. Recent economic trends suggest the U.S. economy is performing well, with signs of growth and hiring in January.
2. The Federal Reserve may continue to raise interest rates to combat inflation, which could impact the stock market, as well as the value of individual investments.
3. It is essential to diversify a portfolio, which can help investors weather market volatility, including a potential economic downturn.
