Week ending ~ February 3, 2023
DOW: -0.2% (YTD:+2.3%)
NASDAQ: +3.3% (YTD:+14.7%)
S&P: +1.6% (YTD:+7.7%)
Entering last Monday, the Nasdaq was up 11.0% and the S&P 500 was up 6.0% so far in January.?Following this strong showing YTD, this last week started on a softer note on Monday as investors took gains.?There was also an element of trepidation ahead of several pending market-moving data releases, including the Q4 Employment Cost Index, the January ISM releases, and the January Employment Situation Report. Additionally, more than 100 S&P 500 companies would be reporting earnings this week, headlined by Meta Platforms (META), Apple (AAPL), Alphabet (GOOG), and Amazon.com (AMZN).
Sentiment started to shift positively on Tuesday as investors looked to close the month on an upbeat note, and generally felt the Fed may pause its rate hikes sooner than otherwise feared following a pleasing Q4 Employment Cost Index and weaker-than-expected January Chicago PMI and Consumer Confidence data.
A strong rebound effort took root on Wednesday following the FOMC's unanimous decision to raise the Fed?Funds?target rate by only 25 basis points to 4.50-4.75%, and Fed Chair Powell's press conference which did not rein in the market's enthusiasm. Mr. Powell acknowledged that the "Full effects of rapid tightening so far have yet to be felt and we have more work to do", and did indicate that core services inflation is still running too high, continuing the?narrative?for ongoing rate hikes.?Overall, however (and most importantly) Powell was generally encouraging about the emerging signs of disinflation, specifically?not condemning loosening financial conditions, and maintaining that there is a path to getting inflation back down without a significant economic decline or significant increase in unemployment.
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Thursday's continued positive reaction to the Fed was abetted by a?huge earnings-driven gain in Meta Platforms (META), as well as?some other Thursday data releases such as the Q4 Productivity report (which featured a moderation in unit labor costs) which left the market feeling good about inflation trends.?Separately, weekly initial jobless claims hit their lowest level (183,000) since April 2022, but that did not deter sentiment, as it was taken as another good sing of a possible "soft landing".
Friday’s trading session turned out to be a losing session with disappointing reports from Alphabet, Amazon, Starbucks (SBUX), and Ford (F) along with a shockingly strong January employment report showing nonfarm payrolls +517,000.
The strong economic data created some doubts as to how soon the Fed would pause its rate hikes, so?Treasuries sold off sharply, causing the 2-yr note yield to rise 21 basis points (to 4.29%) and the 10-yr to rise 14 bp (to 3.53%).?Separately, the Fed Funds futures market is now accounting for the prospect of a third 25 bp rate hike in May. Additionally, many stocks pulled back on profit-taking efforts following Friday's earnings and employment news.
Leading S&P?sectors on the week were cyclicals such as Communications Services (+5.3%), Technology (+3.8%), and Consumer Discretionary (+2.3%).?Only three S&P 500 sectors registered losses: Energy (-5.9%), Health Care (-0.1%), and Utilities (-1.5%).
Our?March?EZTracker Newsletters come out Sunday, February 26, 2023