Category: Weekly Updates

Weekly Updates

Financial News and Portfolio Management Discussion through January 21st

Stocks showed mixed results last week as recession fears resurfaced in response to weak economic data and a tepid start to a new corporate earnings season. The Dow Jones Industrial Average skidded 2.70%, while the Standard & Poor’s 500 declined 0.66%. But the Nasdaq Composite index gained 0.55% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 0.50%.1,2,3

Stocks weakened to start the week amid discouraging corporate earnings and troubling economic data. Disappointing retail sales and manufacturing reports sparked concerns that the Fed may have gone too far in hiking rates, while a drop in initial jobless claims diminished chances of a near-term pause in rate hikes. Welcome news from two big technology names on Friday powered a strong rally that mixed significant indices.

The start of the earnings season was a drag on investor sentiment. While 69% of the S&P 500 constituent companies that reported earnings by Thursday (48 companies) exceeded expectations, the percentage of “beats” is below the three-year average. More concerning, however, was that average earnings declined by more than 2%.4

Retail sales fell 1.1% in December, capping an overall weak holiday shopping season. November retail sales were revised downward to -1.0%, from the earlier estimate of -0.6%. Compared to November-December 2021, sales increased by 5.3%, below the 6 to 8% increase expected by The National Retail Federation.5,6

Many economists viewed these lackluster numbers as evidence of a weakening consumer. A more cautious consumer raises more concerns about a recession at some point this year since the primary driver of U.S. economic growth is consumer spending.

1. The Wall Street Journal, January 20, 2023, 2. The Wall Street Journal, January 20, 2023, 3. The Wall Street Journal, January 20, 2023, 4. The Earnings Scout, January 19, 2023, 5. Census.gov, January 18, 2023, 6. The Wall Street Journal, January 18, 2023

 

Financial News and Portfolio Management Discussion through January 14th

Stocks rallied last week thanks to fresh confirmation of inflation’s cooling trend and growing optimism that an inflation slowdown may provide the Fed with space to ease up on future rate hikes.

The Dow Jones Industrial Average gained 2.00%, while the Standard & Poor’s 500 advanced 2.67%. The Nasdaq Composite index surged 4.82% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, jumped 3.32%.1,2,3

Investor sentiment came into the new year weighed down by recession fears and concerns that Fed rate hikes may “go higher for longer.” Last week a different narrative emerged. Sustained declines in inflation, a rate hike cycle nearing an end, and a resilient economy that may avoid recession resulted in a broad-based rally.

Moderating inflation was evident in the Consumer Price Index (CPI) report released on Thursday, which, in combination with a strong labor report the previous Friday, gave investors confidence that the environment for stocks had improved. Stocks extended their gains to end the week as a few money center banks kicked off a new earnings season with upbeat reports.

December’s CPI report showed a 0.1% decline in prices from November and a 6.5% increase from a year ago. It was the sixth-consecutive month of decelerating year-over-year increases. Core prices (excludes food and energy) slowed to 5.7%, a decline from the previous month’s 6.0% year-over-year rise. For the last three months, core prices have risen at an annualized rate of 3.1%–the slowest pace in over a year.4

Falling gasoline prices (-9.4%) accounted for most of the monthly decline in the CPI. Used car prices (-2.5%) were another bright spot.5

1. The Wall Street Journal, January 13, 2023, 2. The Wall Street Journal, January 13, 2023, 3. The Wall Street Journal, January 13, 2023, 4. The Wall Street Journal, January 12, 2023, 5. CNBC, January 12, 2023

Financial News and Portfolio Management Discussion through January 7th

A strong Friday rally triggered by fresh signs of moderating inflation pushed stocks into positive territory to begin the new year. The Dow Jones Industrial Average rose 1.46%, while the Standard & Poor’s 500 advanced 1.45%. The Nasdaq Composite index gained 0.98%. The MSCI EAFE index, which tracks developed overseas stock markets, added 0.90%.1,2,3

A new year did little to change the market’s overall tenor as trading remained choppy. The first two trading sessions of a holiday-shortened week saw major averages swing wildly between gains and losses as investors balanced an improving outlook on inflation against concerns of faltering economic growth. Mega-cap technology and other high-growth names endured the brunt of the selling pressure.

Stocks took a decisive turn lower Thursday on strong private payroll growth and declining jobless claims, which heightened fears that the Fed would need to push interest rates higher for longer. However, stocks staged a powerful rally on Friday despite another strong job number, partly due to a deceleration in wage growth.

The Fed has communicated that it’s looking for weakening in the labor market before it can feel confident higher rates are working to slow inflation. Employment reports last week indicated that the Fed might need to wait a bit longer for evidence of a fading labor market.

Automated Data Processing’s (ADP) monthly employment report showed the private sector adding more jobs (235,000) than consensus estimates (153,000), with strong wage gains over the last year (+7.3%). Initial and continuing jobless claims fell in the last week of December and remained at pre-pandemic levels. Finally, the government’s monthly employment report showed employers adding a healthy 223,000 jobs in December.4,5,6

1. The Wall Street Journal, January 6, 2023, 2. The Wall Street Journal, January 6, 2023, 3. The Wall Street Journal, January 6, 2023, 4. CNBC, January 5, 2023, 5. The Wall Street Journal, January 5, 2023, 6. The Wall Street Journal, January 6, 2023

Financial News and Portfolio Management Discussion through December 31st

In a holiday-shortened week, erratic trading left stocks marginally down for the week. The Dow Jones Industrial Average lost 0.17%, while the Standard & Poor’s 500 slipped 0.14%. The Nasdaq Composite index fell 0.30%. The MSCI EAFE index, which tracks developed overseas stock markets, edged 0.61% higher.1,2,3

Steps by China to move past its zero-Covid policies triggered concerns that its economic reopening might aggravate inflation pressures, sending stocks lower and bond yields higher to begin the week. Technology stocks saw the most significant hit.

With dimming prospects of a Santa Claus rally (the historical tendency of stocks to rise in the final trading days of the year and the first two days of the new year), stocks rebounded strongly on Thursday to erase the losses of the previous two days. However, stocks again turned lower to end the week with small losses.

In an otherwise slow week for news, two monthly reports were released highlighting the market’s headwinds. The first was State Street’s Investor Confidence Index, which measures the risk appetite of institutional investors. The December report showed the confidence of large asset managers in investing in risk assets, like stocks, has dropped over the past two months, explaining, in part, why stocks may have struggled of late.4

Meanwhile, the Atlanta Fed released its Survey of Business Uncertainty, which reflected both declining expectations around sales growth and employment, along with growing uncertainty about revenue and employment growth over the next 12 months.5

1. The Wall Street Journal, December 30, 2022, 2. The Wall Street Journal, December 30, 2022, 3. The Wall Street Journal, December 30, 2022, 4. State Street, December 28, 2022, 5. Federal Reserve Bank of Atlanta, December 28, 2022

Financial News and Portfolio Management Discussion through December 17th

Hawkish comments by the Fed and weak economic data heightened investors’ recession concerns and sent stocks lower last week. The Dow Jones Industrial Average lost 1.66%, while the Standard & Poor’s 500 retreated 2.08%. The Nasdaq Composite Index declined 2.72% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.88%.1,2,3

Stocks began the week on a positive note, supported by a cooler-than-expected Consumer Price Index (CPI) report. Stocks reversed direction mid-week, however, following the Federal Open Market Committee (FOMC) meeting in which another 0.5% rate hike was announced. The half-point increase was widely anticipated, but the increase in the terminal rate (i.e., the point at which the Fed stops raising rates) rattled investors. Continued hawkishness by Fed Chair Powell at the post-meeting press conference added to investors’ anxiety. The potential for higher rates for longer, along with disappointing economic data, particularly a sharp decline in retail sales, amplified fears of a recession and sent stocks lower for the remainder of the week.

The release of November’s CPI showed inflation cooling for the second consecutive month, as prices rose just 0.1% month-over-month and 7.1% from a year ago. Both were better than expected.4 The FOMC ended its last meeting of 2022 by raising interest rates another 0.5% and signaling that it would likely continue to hike rates into the new year. At a subsequent press conference, Fed Chair Powell commented that the next rate increase could be a quarter-percentage point. Most FOMC members appear to support raising the terminal rate (the point at which hikes end) to above 5%, up from its September projection of 4.6%.5

1. The Wall Street Journal, December 16, 2022, 2. The Wall Street Journal, December 16, 2022, 3. The Wall Street Journal, December 16, 2022, 4. CNBC, December 13, 2022, 5. The Wall Street Journal, December 14, 2022

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