Week in Review: January 13, 2023

Markets ended the week higher with the S&P 500 recording its best week since November. Further declines in inflation and interest rates helped fuel the rally. Interest rates, as measured by the 10-Year Treasury, fell 0.21% to end the week at 3.51%. Internationally, equity markets enjoyed strong gains aided by European equities which reached nine-month highs on hopes that inflation has peaked. An unusually warm winter in Europe has also alleviated some of the prior concerns about an energy crisis and helped drive natural gas prices down by as much as 84%, back below their pre-Ukraine invasion levels.

As has been the case for a number of months, the market’s primary focus for the week was inflation, and by extension, the Federal Reserve. Speaking on Tuesday, Fed Chair Jay Powell, provided little insight into possible future Fed actions beyond reiterating comments that he had made previously. While some investors hoped he would comment more specifically on December’s jobs report, described by some as a “goldilocks” report, markets were generally relieved that he didn’t make any new “hawkish” comments regarding future policy actions.

By far, the market’s main focus for the week was Thursday’s consumer inflation report, which showed that overall inflation continues to decelerate. However, a more nuanced reading revealed that despite slowing goods prices, services prices are still accelerating in places suggesting the Fed will need to remain vigilant in its fight against inflation.