This Week in Review:

Is a Soft Landing Still Possible?

The market reaction to Fed policy has shown traders wavering between belief in a “soft landing” and a “hard landing”.

Polaris Investment Team |


Since when is good news bad? On Wall Street of late, it’s when upbeat economic news heightens concerns that the Federal Reserve will hike interest rates and keep them higher for longer than investors would like. The market reaction to Fed policy has shown traders wavering between belief in a “soft landing” (where inflation is tamed without causing recession) and a “hard landing” (recession or economic stagnation).

A blowout January jobs report—517,000 new jobs created and unemployment falling to 3.4%, the lowest since May 1969—means the Fed may need to persist in its campaign against inflation. The narrative goes something like this: If (in-demand) workers win higher wages, businesses raise their prices to accommodate the increase in labor costs and inflation continues climbing. Ergo, the Fed keeps rates higher for longer. 

Fed Chair Powell said Tuesday that the surprisingly rosy hiring figures demonstrate monetary policy takes “a significant period of time” to work its deflationary magic. And he doubled down on signaling that his focus is on long-term policy results rather than market appeasement. In other words, he’s not ready to call an end to higher interest rates anytime soon. 

Here’s what else we’re watching this week and why:

  • Accelerating used car prices during the pandemic served as a bellwether for both new car prices and broader inflation. And when prices slid (15% nationwide in 2022), it made a dent in the overall inflation numbers (used cars account for 4.5% of the consumer price index). Now prices are climbing again—up 2.5% in January from the month prior. The takeaway? Inflation is slowing but still rising in certain areas. 
  • What else rose recently? The trade deficit, which reached its widest gap on record last year. The trend illustrates the U.S. economy’s continued recovery, though elevated energy prices explain some of the rise because trade data is not adjusted for inflation.
  • One bulwark against recession: State governments are flush, with cash reserve levels at an all-time high. (Unlike the federal government, 40 states are required to balance budgets annually.) Having that extra cushion means a lower likelihood of layoffs in the public sector and the potential for spending on job-creating projects and programs. All told, state and local governments account for 11% of spending in the U.S. economy and 13% of the nation’s jobs. 

Chart of the Week: How to Hedge Against Inflation

By Charlie Toole, Vice President, Portfolio Manager 

Inflation has been grabbing headlines for nearly two years. After a year like 2022, when inflation rates were at generational highs and stocks were dropping, many investors had the same question: What is the best way to hedge against inflation?  

It’s popularly assumed that commodities and gold, two asset classes that were up in 2022, are key portfolio tools to offset a rising cost of living. While commodities and gold do well during inflationary periods, I favor a different inflation hedge: Stocks. 

You’ll rarely hear anyone bring stocks into the inflation-hedging conversation, yet stocks have risen just as much as gold (significantly more, if you count dividends) since the U.S. dropped the gold standard in 1971. In the chart below, I show how stocks and gold stack up to the consumer price index (CPI) and the money supply, which is the total amount of cash, checking deposits and certificates of deposit (CDs) outstanding in the economy. (The money supply is one means by which economists gauge inflation’s impact.) Since 1971, the money supply is up more than 3,000%. CPI, the more traditional measure of inflation, is up 600% over the same time.  

Investors have many options when it comes to protecting their wealth from rising prices—and it can make sense to do some mixing and matching in your portfolio. For most people, stocks are a great foundation for your inflation-hedging needs. If you have any questions about your strategy, please contact your wealth adviser.

Note: Chart shows total return for each index/asset class from December 1970 through January 2023. Sources: Adviser, Bloomberg.

Inherited IRA Q&A

By Manager of Financial Planning Andrew Busa, MSPFP, CFP®, MPAS®, CCFC

We’ve received numerous questions from clients lately about the rules for inherited IRAs and how they’ve changed with successive rounds of legislation. Here’s a roundup of some of the most common ones and our answers: 

How did the SECURE Act impact inherited IRAs?

The 2019 legislation put an end to the “stretch IRA,” whereby individual retirement accounts could be passed along from one generation to the next, earning tax-free growth with few limitations. Instead, the SECURE Act implemented a 10-year rule for certain non-spouse heirs requiring the entire IRA account to be disbursed by the end of the 10th year following the original IRA owner’s death.

The 10-year rule does not apply to what are called “eligible designated beneficiaries” (surviving spouses, children under 21 years old, disabled or chronically ill beneficiaries, or those within 10 years of age of the decedent). Those folks can continue to stretch!

How does the IRS waiver change things?

In March 2022, the IRS threw an additional monkey wrench into the 10-year rule, suggesting that if the original IRA owner died before they were required to begin taking required minimum distributions (RMDs, which start on one’s 72nd birthday), then certain beneficiaries must empty the account in 10 years and take annual RMDs in years one through nine. This unexpected guidance caused quite a bit of confusion. 

To alleviate the chaos, in October 2022 the IRS said that it was waiving penalties for missed 2021 and 2022 required payouts within the 10-year window. This seems to indicate that the proposed 10-year rule will not apply until 2023. That said, we expect to hear final guidance from the IRS on this topic sometime this year.

Yes, it’s complicated. This visual does a nice job of summing up the high-level rules.

Sources: Michael Kitces, Adviser.

What about “year-of-death” RMDs?

Regardless of the IRS waiver, if the original account holder needed to take an RMD in the year of their death and did not take it before they died, it’s the responsibility of the beneficiary to take it by Dec. 31 of the year the original account holder passed away.  

Remember, eligible designated beneficiaries are not impacted by most of these rules. Beneficiaries who inherited before the SECURE Act went into effect can continue to “stretch.” Yes, there are a lot of nitty-gritty nuances. Luckily, you don’t need to sort through the rules or commit any of this to memory. Talk to your adviser today—our team is ready to help.

Looking Ahead

Next week brings ample useful data, including the latest reads on small businesses, retail sales, manufacturing, homebuilding, building permits, housing starts, leading economic indicators and inflation.

If you’d like to learn more about our tactical or fundamental strategies, please contact our team at 800-268-9046 or

Please note: This update was prepared on Friday, February 10, 2022, prior to the market’s close.

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