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2020 Financial Markets Update

Week in Review: February 10, 2023

February 13, 2023

Recap & Commentary

Markets ended the week lower as they continued to digest the prior week’s employment report, comments from Federal Reserve Chair Jay Powell, additional corporate earnings releases, and a rise in interest rates.

Speaking Tuesday at the Economic Club of Washington, Powell largely reiterated his post-Federal Open Market Committee (FOMC) meeting comments from the prior week, acknowledging that while “disinflation” has begun, further interest rate hikes remain necessary to ultimately return inflation to the Fed’s 2% target. Powell also reiterated that once the Fed raises rates to a level that it believes is sufficient to achieve its inflation goal, it will likely have to hold them there “for a period of time.” That likely contributed to both the decline in stocks, as well as a 0.22% rise in interest rates as measured by the 10-Year Treasury yields. In addition, market expectations for the Fed Funds rate at year end rose. Whereas a week ago, markets were expecting two additional rate hikes in 1H22 and then two cuts in 2H22, markets are now almost evenly split on whether the Fed will cut just once before year end or not at all.

Through Friday, 69% of S&P 500 companies had reported 4Q22 earnings.  Thus far, 69% have beaten their earnings estimates. According to industry group FactSet, consolidated earnings growth for 4Q22 is expected to be -4.9%.

Economic Commentary

Consumer sentiment rose in early February, led by an improvement in consumers’ current views of the economy, which were slightly offset by a small decline in future expectations. More notably, while five-year inflation expectations remained unchanged at 2.9%, one-year expectations rose 0.3%, to 4.2%. That marked the first increase in six months and will almost certainly be noticed by the Fed, which has stated that consumer inflation expectations factor into its monetary policy decisions. While the increase is just one of many data points the Fed considers when making its policy decisions, at the margin, February’s reading argues for the Fed maintaining or increasing its inflation fighting efforts.

Consumer debt rose $11.6B in December, far less than the expected $25B increase economist had expected. The 2.6% increase was the smallest in more than two years as consumers began to cut spending as savings decline and recession concerns build. Revolving credit, consisting largely of credit card debt, increased at an annual rate of 7.3%, its slowest pace since December of 2021.

Weekly jobless claims rose 13K to 196K after falling to a nine-month low the prior week. The reading, which was slightly above the 190K consensus forecast, marked the first increase since mid-December. The four-week moving average of claims, which smooths week-to-week volatility, fell 2.5K to 189.3K, the lowest level since April. The job market has remained resilient despite growing economic headwinds from the Fed’s interest rate increases and continues to provide support for the Fed on its monetary policy tightening path.

Of Note

ChatGPT, the Microsoft-backed, and widely-discussed artificial intelligence (AI) app that generates human-like responses, surpassed 100M users in January, just two months after being released.

S&P 500-1.1%
Small Caps-3.4%
Intl. Developed-1.6%
Intl. Emerging-2.4%
U.S. Bond Market-1.4%
10-Year Treas. Yield3.74%
U.S. Dollar.6%
WTI Oil ($/bl)$80
Gold ($/oz)$1,876

The Week Ahead

  • Consumer Inflation (CPI)
  • Producer Inflation (PPI)
  • Housing Starts
  • Retail Sales
  • Industrial Production
  • Weekly Jobless Claims

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