Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data

• U.S. equities bounced back last week into the green despite rising interest rates.
  • S&P 500 +1.97% Dow +1.75%, Russell 2000 +2.13%, Nasdaq +2.58%1
    • The All-Country World Index rose +1.86%.1
  • S&P 500 sub-sectors were mostly higher last week.
    • Materials, Energy, & Industrials led the way with gains over 3%.1
    • Consumer Staples & Utilities were the only negative sectors, losing less than 1%.1
  • The CBOE Volatility Index (VIX) sank 15% to close at 18.47. 1
• US Treasury bond yields mostly moved higher last week although bonds rallied on Friday.
  • US 2yr +0.08% at 4.86%, 10yr +0.02% to 3.97%, 30yr -0.03% to 3.90%.1
  • Unexpectedly strong economic data continues to cause investors to price in higher yields.
• Commodities as an aggregate asset class moved higher last week.
  • WTI Crude gained 4.63%.1
  • Gold rose 2.42%.1
  • The US Dollar index declined -0.65%.1
• In our opinion, U.S. economic data was mixed last week.
  • The labor market remains robust as jobless claims came in below 200k for the 7th straight week. 1
  • Business investment climbed 0.8% in January for its highest reading since August. 1
  • Manufacturing data contracted in February while Services expanded at a robust pace. 1
• An index of equities outside the US (FTSE All-World ex-US) gained +2.65%.1

Conclusion

• US Equities moved higher last week, snapping a 3-week losing streak.
  • The Nasdaq led to the upside with a gain of 2.58% and on Friday posted its best day since early February. 1
  • Signs of strength emerged in some economic data points last week that gave investors renewed hope that the US economy may avert a recession.
• US equity sectors were mostly higher last week, led by the so-called pro-cyclicals.
  • Energy, Materials, & Industrials all rose over 3% last week. 1
  • The defensive areas of Staples & Utilities were down slightly last week.
  • With sector leadership for far in 2023, it is pretty clear that market participants are not pricing in an imminent recession.
• Commodities moved broadly higher last week as economic data supported the recession avoidance theory floating around the investment community.
  • One area showing the broad gap of forward pricing is the Crude Oil market vs Energy equities.
  • There exists a major disconnect in pricing as the actually commodity trades substantially below shares of energy equities from a historical relationship standpoint.
  • This could be simply explained as:
    • If there’s no recession, crude oil will catch UP to match equity pricing of energy companies.
    • If there IS a recession, energy shares will catch DOWN to match the commodity.
  • We could show similar disconnections in areas across asset classes and macroeconomic data points which further reiterates our suggestion to be patient.
• US Treasury yields continued their recent run higher before rolling over a bit on Friday.
  • The yield curve remains massively inverted with the 2yr yielding over 0.90% more than the 10yr and over 1% more than the 30yr. 1
• Four major events over the next 13 trading sessions will be the key catalysts in determining whether this year’s stock market revival gets derailed or starts rolling again after the February slump.
  • Federal Reserve Chair Jerome Powell will be grilled by congress this week as investors will be searching for any hint on the Fed’s interest rate hiking path.
    • Investors seem to be jumping on any news relating to the possibility of the Fed pausing rate hikes sooner than expectations currently.
    • The rally at the end of last week was after a non-voting member of the Fed suggested the Fed could pause this summer.
    • Additionally, past hiking cycles reveal that when the Fed pauses, the markets continue to experience volatility.
  • After Powell comes the February jobs report this week and Consumer Price Index next week.
  • Then on March 22nd, the Fed will give its policy decision & quarterly interest-rate projections before the chairman holds his news conference.
  • As such, the market is pricing in some fairly wide possible swings over the next few weeks and we continue to urge caution in making big decisions based on selective data points.

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net 

 1 Source: Bloomberg – 3/3/2023 

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