Weekly Market Report: March 8th, 2023
Last week markets absorbed a good deal of Fed speak and an economic calendar which lent itself marginally to a higher for longer (firm growth backdrop) narrative. U.S. equity markets exhibited some breadth with the S&P 500, despite marking a new record high, ending the week down 0.26% while most sub-mega cap stocks posted marginal gains. Developed (+1.6%) and emerging (+0.84%) equity markets were both up nicely for the week thanks in part to a weakening USD which gave back 1.11% against a basket of currencies, particularly the Yen. U.S. bond yields declined mostly on the long end pushing the 10yr yields back down below 4.1%. Commodities were mixed with WTI oil down 2.45% to $78 but industrial metals rallied 1%-5% across the board.
Market Anecdotes
- U.S. equity markets powered by a more sanguine view on interest rates, resilient growth, and the mega cap/ AI craze have bounced a remarkable 26% off the late October 2023 lows, perhaps a bit short term overbought, but a strong tape is a strong tape as they say.
- A look at 2024 forecasted revenue and earnings growth of 5% and 11% respectively suggests the street may still be a bit optimistic given growth expectations and potential earnings headwinds.
- Earnings and performance of the companies within the ‘Mag 7’ have seen some dispersion recently which may carry some interesting translations to both active manager performance and market index considerations.
- The ‘strong tape’ is stronger nowhere more so than the AI fueled semiconductor industry where Bespoke noted 80 consecutive SOX closes at least 3% above its 50-dma, a first ever close above the headline S&P 500 index, but still some very wide dispersion within the index.
- A look back provides an important reminder of how equity markets, despite some unsettling volatility with 10 ‘ups’ and 10 ‘downs’, can ultimately generate a nice outcome. Similarly, a Bespoke look at credit spreads and subsequent equity market returns reminds us to be greedy when others are fearful.
- Powell testimony noted policy moves including taking the fed funds from 0% to 5.25% and QT which has reduced the Fed balance sheet from $8.5t to $7.1t have helped bring PCE inflation down to 2.4% (headline) and 2.8% (core) but they remain data dependent on the path forward.
- Central bank news saw the ECB keep their policy rates unchanged last week while rumors of the BoJ considering an end to its NIRP ( -0.10%) sent some volatility into global bond and currency markets. Higher wages and cooling inflation may give the BoJ room to end the extreme policy.
Economic Release Highlights
- February payrolls handily beat expectations (275k vs 190k) and the unemployment rate rose from 3.7% to 3.9%. Labor market participation stayed at 62.5% and average hourly earnings was broadly in line with consensus of 4.3% YOY (0.1% MOM).
- January JOLTS reported a slight decline in job openings to 8.863M.
- U.S. February ISM Services Index (52.6 vs 53.0) was generally in line with the consensus forecast.
- The JPM Global Manufacturing PMI improved from 50.0 to 50.3 in February while final non-U.S. PMI (C, S) readings were Eurozone (49.2, 50.2), China (52.5, 52.5), U.K. (53.0, 53.8).
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