Tucker Financial Weekly Market Review: January 6, 2023

Markets started off the new year with a dose of optimism fueled primarily by the economic calendar, Chinese mobility/policy support, and related monetary policy implications. The jobs report on Friday sent equity markets sharply higher and bond yields lower on the back of a friendly mix of robust job creation and moderating wage growth. U.S. equity markets closed up 1.5% for the week while developed international and emerging markets were up 2.7% and 4.3%, respectively. Bond yields fell sharply taking the 10 yr UST to 3.55% while the curve steepened as well. Commodities fell nearly 6% thanks to an 8% decline in crude oil.

• 2022 left the S&P down 18%, due primarily to multiple compression, closing with a P/E multiple of 16.7x, a valuation almost exactly at the 25-year average.

• A painful look back at 2022 shows the Barclays Aggregate Index down 13%, the worst return on record by a factor of 4x, a significant contributing factor to the third worst outcome for a 60/40 portfolio since 1950.

• A strong consumer underpins most bullish/constructive views looking into 2023 – a view bolstered by consumer balance sheets, savings, debt service, and the healthy job market.

• Real personal disposable income grew in the back half of 2022 after declining for five consecutive quarters – a strong potential bullish tailwind for 2023.

• With ISM Services and Manufacturing Indexes both falling below 50 for November, a reminder of the predictive nature and efficacy warrants consideration.

• Freight indices and global PMI survey responses on delivery times and input/output prices continue to illustrate healing supply chains and relaxed pricing pressures. Regardless, Fed officials hit the speaking circuit last week and clearly maintained the higher for longer narrative.

• A look at high yield and bank loan maturities show relatively light refinancing needs over the next two years but a considerably higher level in 2025 and 2026.

• BCA suggested most Chinese tier-1 cities have passed peak Covid infections with the remaining areas tick higher and an expectation of return to normalcy sometime later this spring (March).

• Declines in global trade data of small open economies, (Singapore -14%, Taiwan -23.4%) a bellwether for global trade and manufacturing activity, are flashing caution with China reopening, normalizing consumption patterns, and slowing global growth are all contributing.

• The December jobs report came in stronger than consensus with higher job creation (223,000 vs 200,000) and lower headline unemployment (3.5% vs 3.7%). Labor force participation ticked higher from 62.2% to 62.3%.

• Average hourly earnings growth in December came in below consensus for both MoM (0.3% vs 0.4%) and YoY (4.6% vs 5.0%) readings.

• The November JOLT survey registered 10.458mm job openings, higher than the consensus spot forecast of 10.1mm and above the high end of estimate range of 10.00mm-10.33mm.

• The November ISM Manufacturing Index came in at 48.4, a second consecutive decline but slightly higher than consensus forecast of 48.1 and within the estimated range of 47.5 – 49.0.

• November ISM Services Index surprisingly came in well below consensus estimate (49.6 vs 55.0) and dipped into contraction territory.

• November’s J.P. Morgan Global Manufacturing PMI registered 48.6, down slightly from the prior month reading of 48.8.