Weekly Market Report: February 16th, 2023
Markets last week took in more fourth quarter earnings reports and a relatively heavy economic calendar. Bond markets couldn’t look past the warm CPI and PPI reports, pushing yields up 10-15 bps as questions surrounding the disinflation trend and related monetary policy implications surfaced. Equity markets were mixed as leading technology names took a breather while small caps and value stocks enjoyed a rare bout of leadership. Developed international (+1%) and emerging international (+1.26%) both outpaced the S&P 500 (-0.4%) on the week. Commodity markets were flat despite oil rallying 3%, closing just shy of $80, and the USD was relatively flat.
Market Anecdotes
- Last week’s inflation report sparked bond yields and more questions surrounding the ‘last leg’ or final stages of getting inflation back to the Fed’s target.
- Powell’s emphasis on ‘supercore’ CPI, which has risen (YOY) three straight months, contributed to traders pushing rate cuts further out into the future in a higher for longer narrative.
- With the market being talked out of the 7 rate cuts priced in on January 12th to 4 rate cuts most recently, it begs the question, what exactly drove equity markets 4% higher over this timeframe?
- Fed speaking engagements last week continued to push back on market rate cut expectations including Bostic, Daley, and Barkin noting ‘messy’ inflation data, ‘more work to do’, and expectations for two (not four) cuts this year.
- In an eyebrow raising feat, Nvidia overtook Alphabet from a market cap standpoint last week despite the former’s net income being greater than the latter’s revenue. A simple regression of P/E multiples and subsequent five-year returns reminds us that valuations do matter.
- Fourth quarter earnings season, with 80% of the S&P 500 reported, has a beat rate of 75% and beat margin of 3.9% alongside blended earnings growth of 3.2% and revenue growth of 4.0%.
Economic Release Highlights
- January YOY headline and core CPI registered (3.1% vs 3.0%) and (3.9% v 3.7%) respectively with MOM readings of (0.3% v 0.2%) and (0.4% v 0.3%).
- January YOY headline and core PPI registered (0.9% v 0.7%) and (2.0% v 1.7%) respectively with MOM readings of (0.3% v 0.1%) and (0.5% v 0.1%).
- Retails Sales in January fell well short of forecast (-0.8% v -0.1%). Ex-Vehicles (-0.6% v 0.2%) and Ex-Vehicles & Gas (-0.5% v 0.2%) also missed.
- Industrial Production in January missed the spot forecast (-0.1% v 0.2%) as did Manufacturing Output (-0.5% v -0.1%) and Capacity Utilization (78.5% v 78.8%) also fell short.
- January’s NFIB Small Business Optimism Index declined and came in below consensus forecast (89.9 v 92.4).
- UofM Consumer Sentiment reading for January registered 79.6, in line with the consensus forecast of 80.0. One year inflation expectation increased from 2.9% to 3.0%.
- The Housing Market Index for February came in above forecast (48 v 46).
- Housing Starts (1.331M) and Permits (1.470M) in January both came in below the spot consensus and the forecast range.
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