Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data

• U.S. equities roared higher last week led by the 2022 laggards.
  • S&P 500 +2.48% Dow +1.81%, Russell 2000 +2.45%, Nasdaq +4.32%1
    • The All-Country World Index rose +2.13%.1
  • S&P 500 sub-sectors were mostly higher last week.
    • Consumer Discretionary led the way with a gain of 6.41% and Tech rose 4%.1
    • Utilities & Staples were the only negative sectors last week. 1
  • The CBOE Volatility Index (VIX) declined 7% to finish at 18.46. 1
• US Treasury bond yields were little changed last week.
  • US 2yr +0.05% at 4.19%, 10yr +0.04% to 3.52%, 30yr -0.02% to 3.64%.1
  • 4th quarter GDP helped boost shorter term yields while all eyes are on the Fed this week.
• Commodities as an aggregate asset class were lower last week.
  • WTI Crude lost -2.37%.1
  • Gold was flat. 1
  • The US Dollar index declined -0.10%.1
• In our opinion, U.S. economic data was mixed last week.
  • 4th quarter GDP came in better than expected at a gain of 2.9%.1
  • Consumer spending decreased from the previous quarter but remained positive. 1
  • Core PCE inflation came in at +4.4% over the last year, down from last month. 1
• An index of equities outside the US (FTSE All-World ex-US) rose by +0.92%.1

Conclusion

• US Equities were in a clear risk-on mode last week as key indices appear on the verge of breaking out from a year-long technical downtrend.
  • The tech-heavy Nasdaq gained over 4% for its 4th weekly gain. 1
    • This was the Nasdaq’s longest winning streak since August of ’22. 1
  • All other major indices were positive last week as well.
• While stock market gains are welcomed by all investors after the last year, their rip higher has loosened financial conditions.
  • The shift in Fed policy last year wrung out excesses brought on by unprecedented government spending and central-bank largesse, sending the Nasdaq Composite index tumbling 33%. 1
  • An 11% surge to start the year, powered by bets that tech earnings will withstand an economic slowdown, isn’t sitting well with Fed officials who view market gains as diluting tighter policy.
  • The Fed is expected to downshift the pace of its rate hikes next week, and may well reiterate its warning to investors about “an unwarranted easing in financial conditions.”
  • We encourage patience as the underlying economic data continues to weaken vs strengthen.
• We do not believe “Fundamentals” have not played a role at all so far in 2023 as it’s been all about shifts in liquidity and easing of overall financial conditions.
  • In our opinion, interest rate stabilization has also been a key factor of late.
  • Regardless, we are treating recent price action with a grain of salt until underlying data support the move up in equities.
• S&P 500 sub-sectors were mostly higher on the week as the worst performers from ’22 led the way.
  • Consumer Discretionary led thanks to a big week from Tesla. 1
  • Tech also continued its year-to-date strong performance with a 4% gain. 1
  • Defensive areas Utilities & Staples were negative as fast money chased recent momentum.
• US Treasury yields were little changed as investors await the Fed, Bank of England & ECB this week.
  • Interesting to note that despite the economy going into recession or experiencing a soft landing, the massive trillion-dollar pension complex is geared up to buy.
  • Thanks to surging interest rates, means they can reallocate to bonds that are less volatile than stocks — “derisking” in industry parlance.
  • If pension fund managers increase their allocation by 3% to 4% it would translate into $1 trillion of bond purchases, according to JPMorgan calculations.
• For Q4 2022 (with 29% of S&P 500 companies reporting actual results), 69% of S&P 500 companies have reported a positive earnings surprise and 60% of companies have reported a positive revenue surprise. 1
  • If earnings continue as they are, they will end at a 5% decline from the previous quarter. 1
    • As of December 31st, the anticipated decline was 3.2%.1
  • For the 1st quarter earnings of 2023, 17 S&P 500 companies have issued negative earnings guidance and 2 S&P 500 companies have issued positive guidance. 1

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 1/27/2023 

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