By: Dave Chenet, CFA, CAIA®
| Close | Weekly return | YTD return | |
| S&P 500 | 4,136.48 | 1.62% | 7.73% |
| Nasdaq Composite | 12,006.95 | 3.31% | 14.72% |
| Russell 2,000 | 2,001.22 | 6.13% | 13.63% |
| Crude Oil | 73.19 | -8.20% | -8.56% |
| US Treasury 10yr Yield | 3.40% |
Source: YCharts, Yahoo! Finance, WSJ
Market Recap
Despite finishing the week on a softer note, markets continued their very strong start to the year. Despite trailing their tech counterparts in the NASDAQ, small-cap stocks (as measured by the Russell 2,000) posted their strongest start to the year since 1987. The optimism was driven by global central bankers, led by Jay Powell, delivering confidence that inflation had peaked. Markets, in turn, interpreted the message to mean that an end to the rate-hike cycle (and maybe a reversal) is in-sight. In addition, employment and wage data showed a still strong labor market with the pace of wage growth moderating. ISM Services data corroborated the employment data narrative that price pressures are moderating without economic fundamentals pointing to an inevitable recession. On the corporate front, Meta (formerly Facebook) was rewarded by investors after delivering an earnings report which highlighted a focus on cutting costs and delivering value to shareholders in the form of a stock buyback program.
Outside of the U.S., European and Emerging Market indices are broadly positive with gains of 9.83% and 9.82%, respectively (stated in US dollar terms). The combination of dampening concern around Europe’s energy situation, a peak in the pace of inflation and continued signs about a buoyant Chinese economy undergoing reopening have boosted asset prices.
Fixed Income markets have also partially recovered losses from last year, with bond prices higher as yields fall. The U.S. 10-year treasury bond yield fell from a peak of 4.25% last fall to 3.4% on Friday.
With fewer economic data points next week, markets are likely to focus on the ongoing 4th quarter earnings announcements, with 50% of companies having already reported, earnings are broadly in-line with expectations.
What We’re Reading:
WSJ: Stock, Bond and Crypto Investors Bet Fed Is Bluffing on Interest Rates
Economic Policy Institute: Unionization increased by 200,000 in 2022
FT: EU agrees price caps on Russian oil products
Chart of the Week:
Economic activity has picked up meaningfully over the last few months after government officials began loosening economic lockdown measures. Chinese consumers, similar to US consumers coming out of the COVID-related lockdowns, have significant savings, which may drive consumption and benefit global growth (and potentially keep inflation relatively high).
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