Week in Review: January 20, 2023
January 23, 2023
Recap & Commentary
Markets ended the holiday-shortened week lower as investors swung back to worrying about a Federal Reserve-induced recession following a series of disappointing economic data releases. Returns would have been worse were it not for Federal Reserve Governor Christopher Waller, who, on Friday, seemingly confirmed that the Fed will further slow the pace of its rate hikes at its upcoming meeting. Speaking at a Council on Foreign Relations event, Waller said, “I currently favor a 25-basis point increase at the FOMC’s next meeting at the end of this month,” before going on to say that the Fed still has a “considerable way to go” to meet its 2% inflation target.
Though it didn’t necessarily impact the markets, on Thursday, the U.S. officially reached its debt ceiling of $31.4T. In response, the U.S. Treasury began taking “extraordinary measures” to prevent a default. According to U.S. Treasury Secretary Janet Yellen, those measures will likely be exhausted by early June. Though negotiations to raise the debt ceiling have become increasingly contentious in recent years, Congress has raised the debt ceiling 78 times since 1960, often with little fanfare.
Through Friday, 11% of S&P 500 companies had reported earnings. Thus far, 67% of those companies have beaten their earnings estimates. According to industry group Factset, 4Q22 earnings growth is expected to be -4.6%.
Economic Commentary
December Producer Price Index (PPI) data reinforced Consumer Price Index (CPI) data from the prior week showing inflation decelerating. PPI, which measures inflation at the wholesale level, fell 0.5% in December, the largest monthly decline since April 2020. Compared to a year ago, headline PPI slowed from 7.3% in November to 6.2%. Similar to CPI, the largest drivers were slowing food and energy costs. Core PPI rose 0.1%, the slowest pace in two years, as the prices of less volatile components have been more difficult to bring down.
Retail sales fell 1.1% in December as shoppers reigned in spending during the all-important holiday shopping season. The decline followed a 1.0% decline in November. Combined, the declines marked the worst two-month stretch for retail sales since Spring 2020.
Industrial production fell 0.7% in December, worse than the -0.1% forecast. On an annualized basis, industrial production fell 1.7% in 4Q22, marking the first outright decline since 2Q20. Manufacturing output, which accounts for about 75% of industrial production, fell 1.3% for the month, the second consecutive monthly decline and the most since February 2021.
Housing starts fell for the fourth consecutive month while existing home sales fell for the 11th straight month. Housing starts fell 1.4% In December, capping the first annual decline since 2009. Existing home sales slid 1.5% in December and 34% compared to a year ago. For the full year, existing home sales fell 17.8%, the sharpest annual decline since 2008.
Of Note
Weekly jobless claims fell 15K to 190K, their lowest level in four months. Despite the Tech industry laying off over 100K employees in recent months, national-level claims data suggest many of those losing jobs have quickly found new ones, reinforcing the notion that labor markets remain robust overall.
| S&P 500 | -0.7% |
| Small Caps | -1.0 |
| Intl. Developed | 0.0% |
| Intl. Emerging | 0.6% |
| Commodities | 0.6% |
| U.S. Bond Market | 0.2% |
| 10-Year Treas. Yield | 3.48% |
| U.S. Dollar | -1.9% |
| WTI Oil ($/bl) | $81 |
| Gold ($/oz) | $1,928 |
The Week Ahead
- 4Q22 GDP
- Durable Goods Orders
- New Home Sales
- Pending Home Sales
- PCE Inflation
- Personal Income & Spending
- Consumer Sentiment
- Weekly Jobless Claims
