Weekly Market Report: January 26th, 2023

Last week, markets took in a healthy dose of both economic and earnings reports, moving equity markets higher globally. U.S. large caps were up 1% to a new record high while small caps added 1.75%. Participation was relatively broad, led by the energy and communication services sectors. International developed (+1.5%) and emerging (+1.3%) outperformed thanks in part to a bounce in Chinese equities. Interest rates were relatively unchanged despite the encouraging economic news, but commodity markets rallied sharply with energy markets leading the way as WTI oil surged 6.3% to $78.01 on the week.

Market Anecdotes

  • Central banks in or beginning easing cycles alongside healthy economic indications (GDP, labor, inflation) have overshadowed a sub-optimal start to fourth quarter earnings season.
  • The FOMC meeting on tap this week is focused on quantitative risk assessment with no policy announcements expected. Markets have been walking back 2024 rate cut expectations (from 6 to 5) but resilient growth and consumption may still challenge that further.
  • With 25% of S&P 500 companies reported, the beat rate is 69% and beat magnitude is -5.3% with blended earnings of -1.4% and revenue growth of 3.2%. The 12-month forward P/E multiple is 20x.
  • Chinese policy makers, responding in part to nearly $6t in losses across mainland and Hong Kong equity markets since February 2021, announced stimulus headlines last week including a PBoC 0.5% RRR rate cut and a possible CNY 2t stock market rescue package.
  • BCA’s Geopolitical team’s annual look at low probability, high impact market risks include a Chinese recession, oil shock in Iran, and military conflicts with Russia/East Asia.
  • Despite higher interest rates pressuring corporate debt coverage levels, leveraged loan default rates have remained below historical averages due to a significant increase in ‘distressed exchanges’ which include out of court restructurings, exchanges, and sub-par paybacks.
  • The spot Bitcoin ETFs launched on January 11th have thus far been a “sell the news” illustration, down over 20% while equity markets have grinded higher.
  • To put a number on higher mortgage rates, a mortgage loan today is over 2% higher than any time since 2011 which equates to $385/mo on a $300,000 conforming 30-year loan.

Economic Release Highlights

  • The pace of headline (core) PCE inflation fell in November registering 2.6% (2.9%) YOY and MOM readings of 0.2% (0.2%), both generally in line with consensus. Personal Consumption exceeded forecasts (0.7% vs 0.4%) and Personal Income growth of 0.3% was in line.
  • The first estimate of 4Q GDP came in well above consensus (3.3% vs 2.0%) and the high end of the forecast range (1.3% – 2.5%).
  • Personal Consumption Expenditures of 2.8% in 4Q cooled slightly from the 3Q rate of 3.1% but beat the spot forecast of 2.5% and above the high end of forecast range (2.4% – 2.6%).
  • January U.S. PMI (C, M, S) registered 52.3, 50.3, 52.9 where both services and manufacturing readings came in well above consensus forecast and the high end of their respective ranges.
  • January non-U.S. PMI (C, M, S) last week included relatively constructive readings in the Eurozone (47.9, 46.6, 48.4) and UK (52.5, 47.3, 53.8).
  • Durable Goods Orders were mixed in December with a miss on New Orders (0% vs 1%), a beat on ex-Transportation (0.6% vs 0.2%), and a beat on Core Capital Goods (0.3% vs -0.2%).
  • New Home Sales in December of 664k came in slightly ahead of the spot consensus forecast of 660k and increased slightly over the prior month’s 615k pace. Pending Home Sales jumped 8.3% on the month, well ahead of the 1.3% spot consensus and 0.7%-3.9% forecast range.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
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