Week in Review: January 13, 2023
January 17, 2023
Recap & Commentary
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.
Headline consumer inflation (CPI) fell 0.1% in December, its first monthly decline since May 2020. The decline was largely due to falling energy prices combined with slowing food inflation. Core CPI, excluding food and energy, rose 0.3%, its fastest pace since September. Shelter was the largest driver, rising 0.8%, its largest gain since 1985. On a year-over-year basis, headline inflation slowed to 6.5%, down 0.6% from November. The disconnect between goods and services prices continued in December with the goods prices slowing to 2.1% year-over-year, the least since March 2021. Meanwhile, services prices accelerated to 7.0% year-over-year, the fastest rate since August 1982.
Consumer sentiment surprised to the upside, reaching its highest level in nine months, as inflation and recession concerns subsided during the month. One-year inflation expectations decreased for the fourth consecutive month, falling 0.4% to 4.0%. The current reading is the lowest since April 2021.
Consumer credit rose nearly $28B in November, down only slightly from the $29.1B gain in October. Revolving credit, the most volatile category, rose 16.9% in November following October’s 10.3% increase. Consumer credit has grown between $24-$30B per month for the past seven months, suggesting individuals are increasingly turning to credit cards to support spending in the face of higher inflation and decreased savings.
4Q22 earnings season officially began with a number of large banks reporting results. According to industry group Factset, consolidated S&P 500 earnings for 4Q22 are expected to contract -3.9%, the first outright contraction since 3Q20. Earnings growth has come under increased scrutiny as investors fret that falling earnings could introduce additional market volatility.
|U.S. Bond Market||0.9%|
|10-Year Treas. Yield||3.51%|
|WTI Oil ($/bl)||$80|
The Week Ahead
- Producer Inflation (PPI)
- Housing Starts
- Existing Home Sales
- Retail Sales
- Industrial Production
- Weekly Jobless Claims