Week in Review: January 6, 2023

Markets began the year on a positive note, with the S&P 500 snapping four consecutive weekly losses while enjoying its best week since late November. December’s employment report and a decline in interest rates — the 10-Year Treasury yield fell 0.16% during the week — fueled the gains. Commodities were the notable laggard, dragged down by an 8.1% decline in oil prices. News from several weeks ago that China was scrapping its zero-COVID policies initially spurred optimism that the abandonment of draconian lockdowns would benefit both the country’s domestic economy, as well as the broader global economy. That optimism has ebbed of late as new COVID-19 cases surge, hampering the country’s return to “normal” and with it, demand for commodities.

Friday’s employment report showed that employers continue to hire workers at a healthy pace despite growing concerns of a looming recession. Business data showed that the economy added 223K jobs in December, while the government’s household survey data, which is used to calculate the unemployment rate, showed that 717K individuals found work. The combination of strong hiring, more people looking for work, a small reduction in job openings, and slower wage growth, was well received by the markets in that it balanced concerns about economic growth against those of additional Federal Reserve rate hikes.

The release of the Fed’s December Federal Open Market Committee (FOMC) meeting minutes shed little new light on the Fed’s plans for monetary policy in 2023. The minutes did note, however, that “most participants emphasized the need to retain flexibility and optionality” with respect to policy. Depending on one’s inflation outlook for 2023, flexibility could be viewed either positively or negatively.