Weekly Market Report: January 19th, 2023
Markets took in a good deal of central bank pushback and some firmer economic data last week very much in stride. A tech and shadow tech rally pushed the S&P 500 to a new record high despite yields drifting higher in two of the past three weeks. The S&P 500 climbed 1.17% while international developed (-1.1%) and emerging (-1.7%) both declined. Bond yields were up across the curve with the belly (2s, 3s, 5s) up over 25 bps. The USD strengthened 0.86%, up 1.9% to begin the year, while commodity markets and WTI oil ($73.41) were both relatively flat on the week.
Market Anecdotes
- The S&P 500, which has been up 11 of the past 12 weeks, marked a new all-time high for the first time since January 3, 2022 last week. Interest rate relief, disinflation/growth outlooks, the AI/”Mag 7” rally, and multiple expansion explain most of the recent move.
- Metrics indicating softening demand for labor (more of a leading indicator), would include declining job openings, hiring rates, temporary employment, business survey hiring intentions, quits rate, and average hours worked – all seemingly flashing yellow as we look into 2024.
- A still robust liquidity backdrop provides a constructive backdrop for risk assets and can also mitigate risks of protracted downturns as liquidity sometimes serves as a support mechanism in market dislocations.
- Nine FOMC speaking engagements last week in advance of the month end FOMC meeting served to cool dovish market expectations, taking rate cut probabilities down to 46% for the upcoming March 20th meeting and now pricing 140 bps of easing for the year, down from nearly 175 bps.
- Fourth quarter earnings are off to a subpar start with a beat rate of 62%, a beat magnitude of -18.1%, and a blended -1.7% earnings result. Blended revenues are growing at 2.9%. Misses at this early stage in the financial sector account for the weak start.
- A Goldman research note highlighted how the record lack of financial (rate) incentive to refi outstanding mortgages is translating to anemic existing home sales albeit in what can only be categorized as a resilient U.S. housing market.
- With all the focus on global shipping choke points, Peterson Institute for International Economics published an interesting paper on long term trends in global trade cycles and globalization.
- BCA noted the fall in oil prices in the back half of 2023 can be partially attributed to an 880k b/d surge in U.S. production to record high levels thanks to a flood of DUC shale wells coming online.
Economic Release Highlights
- December Retail Sales beat on headline (0.6% vs 0.4%), Ex-Vehicles (0.4% vs 0.2%), and Ex-Vehicles & Gas (0.6% vs 0.3%).
- Consumer Sentiment Index in January improved from 69.7 to 78.8, above the spot forecast 69.2 and consensus range 66.5-72.5.
- Housing Market Index climbed in January to 44 from prior month reading of 37 and ahead of consensus forecast of 38.
- December Housing Starts (1.460M vs 1.425M) and Permits (1.495M vs 1.478M) both came in slightly ahead of forecasts. Existing Home Sales of 3.78M were down 1% MOM and -6.2% YOY.
- Industrial Production in December grew 0.1%, slightly ahead of the -0.1% consensus estimate.
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