"Fiscal & Fusion"

MONETARY

• Within the recent release of the Federal Reserve’s FOMC Minutes release, it was noted that the US Economy continues to remain strong on several levels, despite a more restrictive policy stance³
  • Regarding spending and the state of the Labor Market³
    • (FOMC) “participants noted that recent indicators pointed to modest growth of spending and production. Nonetheless, job gains had been robust in recent months, and the unemployment rate had remained low”³
  • On the state of Household spending³
    • (FOMC) “participants noted that growth in consumer spending in September and October had been stronger than they had previously expected, likely supported by a strong labor market and households running down excess savings accumulated during the pandemic”³
  • Participants also noted that a more restrictive monetary policy stance has had its intended effect on various interest rate-sensitive areas of the economy, particularly housing³
    • (FOMC) “Participants commented that higher mortgage interest rates had notably restrained housing activity and that they expected housing activity to remain weak. A couple of participants remarked on anecdotes or concerns from builder contacts about contract cancellations by purchasers no longer able to qualify for loans at higher interest rates”³
  • Businesses appear to continue to be optimistic about future economic prospects, while also recognizing the level of uncertainty surrounding future economic activity³
    • (FOMC) “Based on discussions with District contacts as well as a survey of firms’ chief financial officers, some participants commented that while businesses were generally optimistic about their own prospects, they expressed increasing concern about the general economic outlook for 2023”³
  • Supply chain bottlenecks have also continued to improve, while some areas continue to experience difficulties³
    • (FOMC) “Participants noted signs of continued easing in supply bottlenecks, with a couple citing District contacts’ reports of declines in shipping costs and delivery times. Even so, participants remarked that the improvements in supply chains had not been uniform and supply shortages remained for some types of goods”³

 

FISCAL

• President Biden signs into law to $1.7 trillion fiscal year 2023 Omnibus Appropriations bill, funding the government through September 2023. Highlights of the bill include:¹
  • $772.5B for Non-Defense Discretionary Spending, as well as $858B in Defense Spending¹
  • $44.9B in support to Ukraine and NATO allies¹
  • $40.6B of aid to communities across the United States dealing with drought, hurricanes, flooding, wildfire, and natural disasters¹
  • $58.7 billion for programs authorized by the Infrastructure Investment and Jobs Act¹
  • $1.8 billion in new funding to implement the bipartisan CHIPS and Science Act of 2022¹
  • $8 billion for the Child Care and Development Block Grant¹
  • $5 billion for the Low-Income Home Energy Assistance Program¹
  • The top-line spending figures for each of the 12 Appropriation categories are as follows¹
    • Agriculture & Rural Development: $25.48B¹
    • Commerce, Justice, Science (CSJ): $83.85B¹
    • Department of Defense: $797.7B¹
    • Energy & Water Development: $54.65B¹
    • Financial Services & General Government: $27.69B¹
    • Homeland Security: $60.7B¹
    • Interior & Environment: $40.45B¹
    • Labor/Health & Human Services/ Education: $209.9B¹
    • Legislative Branch: $6.9B¹
    • Military Construction & Veteran Affairs: $135.2B (Discretionary) plus an additional $168.6B (Mandatory)¹
    • Department of State & Foreign Operations: $61.76B¹
    • Transportation, Housing, Urban Development: $90.95B¹

 

GEOPOLITICS

• In a move seemingly reversing its Zero-Covid Policy, the Chinese government scraps most of its Covid testing and quarantine requirements, as well as significantly curtails the power of local officials to shut down areas²
  • Move comes in response to widespread protests that have emerged in major cities throughout the country which have called for an end to China’s Zero-Covid Policy²
  • China’s economy has suffered under the Zero-Covid Policy, with recent reports suggesting that factory activity and exports significantly contracted in recent months²
  • Policy reversal now allows for people to quarantine at home instead of being transported to government quarantine facilities, scrapping the need for virus testing and scanning of health QR codes when entering public spaces, and disallowing local officials to shut down businesses²

 

MISCELLANEOUS

• In a monumental scientific breakthrough, scientists working at the Lawrence Livermore National Laboratory successfully sparked a nuclear fusion reaction that produced more energy than went into it⁴
  • S. Energy Secretary Jennifer M. Granholm heralded the achievement as a significant scientific breakthroguh⁴
    • (Granholm) “This milestone moves us one significant step closer to the possibility of zero carbon abundant fusion energy powering our society. If we can advance fusion energy, we could use it to produce electricity, transportation fuels, power heavy industry, [and] so much more.”⁴
  • The breakthrough achievement proves that it is scientifically possible to reproduce the same type of energy that is used to full the sun⁴
  • Although much more research and development is needed to make the breakthrough commercially viable, estimates for when that date will come have been drastically shortened⁴
    • (Dr. Kim Budil – LLNL Director) “Not six decades, I don’t think. I think not five decades, which is what we used to say. I think it’s moving into the foreground and probably, with concerted effort and investment, a few decades of research on the underlying technologies could put us in a position to build a power plant.”

 

[See Below for Disclosures & Annotations]

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

 

ANNOTATIONS

1. United States Senate Committee on Appropriations. “Chairman Patrick Leahy (D-Vt.) Releases Fiscal Year 2023 Omnibus Appropriations Bill”. December 20, 2023.
2. Wall Street Journal. “China Scraps Most Covid Testing, Quarantine Requirements in Policy Pivot”. December 7, 2022.
3. Federal Reserve. “Minutes of the Federal Open Market Committee December 13–14, 2022”. January 4, 2023.
4. Yahoo. “New Breakthrough in Nuclear Fusion Could Lead to Limitless Clean Energy”. January 2, 2023.