Weekly Market Report: February 9th, 2023
A light economic calendar last week allowed markets to focus on a full roster of fourth quarter earnings reports and a heavy dose of Fed speak with twelve speaking engagements on the calendar. In a micro over macro week, equity markets pushed to new record highs with the S&P 500 (+1.4%) closing above 5,000 for the first time. Developed markets stayed relatively flat (+0.2%) while emerging markets (+2.4%) benefited from rumors of additional stimulus measures percolating in China which rallied 4.4% on the week. Bond yields have latched onto the sustained growth narrative, rising 10-15 bps in what has been a rough start to 2024. The USD added marginally (+0.18%) to the strength it has seen so far in 2024 (+2.74%) and oil clawed back most of last week’s losses, rising 6.3% for the week, now up 7.2% in 2024.
- The S&P 500, up 14 of the past 15 weeks, closed above the 5,000 mark for the first time and set a new record high giving financial media types an easy storyline this week. An increasingly narrow rally at the top end of the index is giving some investors pause.
- David Einhorn pointed out some obvious concerns surrounding the growth of passive (now 53% of U.S. AUM) and algorithmic investing noting “Passive investors have no opinion about value. They just assume everybody else has done the work” and “Algos have an opinion about price, like what is the price going to be in 15 minutes?”
- S&P 500 earnings results continued to improve from the difficult start with blended earnings growth up to 2.9% with a beat rate of 75% and a beat margin of 3.8%.
- Rumblings at NYCB have investors worried about regional banks but the balance sheet looks notably different from SVB and FRB situations last March but the slow moving CRE trainwreck most definitely has more chapters to play out.
- Bespoke noted the two day surge in the 10yr bond yields (+28.4 bps) following the January jobs report is the second largest of the current cycle with the largest being the yield spike leading up to a surprise 75 bps Fed rate hike in June 2022.
- The FOMC speaking circuit last week pushed back on both timing and scope of market rate cut expectations while reiterating a patient but ultimately easing bias. ISM Services prices paid last week are worth noting with the disinflation trend a key lynchpin for risk assets looking forward.
- Jobs and PMI readings have taken the most recent Atlanta Fed GDPNow model estimate of 1Q growth up from 3.0% to 3.4%.
- Last week’s annual BLS CPI revisions, which Fed Governor Waller highlighted the importance of, revealed minor downward revisions to headline Oct-Dec readings but core readings were unchanged.
- Hulbert Ratings illustrated a clear case of mean reversion with high yield credit spreads as tight as they are today (3.38%) showing the coming 12 or 24 month change favors a clear gap higher.
- The January senior loan officer opinion survey showed banks continuing to tighten lending standards and terms, more in line with economic downtrends than the uptrend we’re seeing.
- News of President Xi Jinping’s intent to focus on economic and financial market challenges sprouted some optimism in China for potential government assistance and regulatory measures.
Economic Release Highlights
- January ISM Services Index beat consensus (53.4 vs 52.1) and registered above the high end of
- the forecast range (51.5 – 53.0).
- Initial (weekly) jobless claims were relatively in line at 218,000, moving the 4-week moving average to 212,000.