Market In A Snap! January 16th – January 20th

By: Dave Chenet

 Close Weekly return YTD return 
S&P 500 3,972.61 -0.27% 3.47% 
Nasdaq Composite 11,140.43 1.27% 6.44% 
Russell 2,000  1,836.35 -0.43% 6.09% 
Crude Oil 81.31 2.91% 1.42% 
US Treasury 10yr Yield 3.39%   

Source: YCharts, Yahoo! finance 

Market Recap 

The broad stock market rallied on Friday to finish the week roughly unchanged.  A strong end-of-week Initial Jobless Claims report combined with a declining Purchaser Price Index report offset the weak report in U.S. retail sales.  Market participants increased their bets of a “soft landing” with expectations for the Federal Reserve to increase short-term borrowing costs by 0.25% on February 1st, vs the 0.5% median expectation previously held.  Notably, Goldman Sachs issued a report in which their analysts are not expecting a U.S. recession or a European recession in 2023. 

Non-US markets gained on the week, with Europe continuing its strong recent run and posting a 2.37% gain on the week with broad Emerging Markets gaining 1.71%, their respective year-to-date gains are 8.03% and 10.11% (in US dollar terms).  Non-US stocks have benefitted from a reprieve of dollar strength, which is down -10.55% from its September 2022 peak relative to a basket of currencies. 

Politically, the debate around raising the debt ceiling took center stage this week, with Treasury Secretary Janet Yellen urging congress to act.  Should the debt ceiling not be raised, the government is expected to be unable to pay its bills within months, after having depleted the Treasury General Account among other measures.    

Companies announcing their Q4 ’22 continued to trickle in, with Goldman Sachs and Morgan Stanley reporting mixed results and Netflix missed their earnings expectation but offered an upside surprise to subscriber growth.  Earnings announcements pick up pace next week, with notable companies including Johnson & Johnson, Microsoft, Boeing and Tesla all reporting.  Overall, Q4 ’22 earnings are expected to be -4.6% from Q4 ’21, which would mark the third consecutive quarter of negative year-over-year earnings declines.  Expectations for full-year 2023 earnings growth have come down from 15% just a few months ago to just 4% today.1 

Along with continued earnings, the Bureau of Economic Analysis will release the first estimate of how much (or little) the economy grew in the 4th quarter of 2022.  The Atlanta Fed’s GDP Now tool forecasts that the economy grew at a 3.5% annual rate, while the consensus economist expectation is for an expansion of just 2.6%.2 The report will also include the Core PCE data, which is the Federal Reserve’s preferred indicator of inflation.  Core PCE is expected to come in 4% higher than a year ago, down from the 4.7% advance reported last quarter.  Markets will likely look closely at this data as it will be the last inflation data that the Federal Reserve will get prior to their meeting which concludes on February 1st.  



What We’re Reading: 

Goldman Sachs: Why the US Can Avoid a Recession in 2023 

New York Times: Why China’s Shrinking Population Is A Cause For Alarm 

The Economist: The Destructive New Logic That Threatens Globalization 

Chart of the Week: 

The potential peak in inflation has halted the advance of interest rates.  One primary beneficiary of yields peaking would be dividend-paying stocks.  This chart illustrates how those stocks historically benefit as the 5-year treasury yield falls below its 200-day moving average (which it is currently). 

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