Economic Update 1-10-2023
- Economic data for the first week of the year included several reports continuing to show a strong labor market, although not as strong as it has been. However, ISM manufacturing fell further into contraction, joined by ISM services for the first time since the pandemic.
- Global equities gained to start the first week of the year, with foreign outpacing domestic. Bonds also gained as interest rates pulled back on softer implications for inflation and growth. Commodities fell back along with weaker oil prices.
U.S. stocks started the year decently, but faded mid-week as stronger than expected labor data caused sentiment to weaken. Again, this appeared to be back to a ‘good news is bad news’ paradigm, related to a robustness in the economy that could let the Fed keep policy tighter for longer. While it appeared odd the markets would rally on the stronger Friday labor report, slowing wage growth and the ISM services index falling into contraction after nearly three years of expansion were more nuanced reasons, as these showed calming of inflation and further raised recession risk.
By sector, communications led with a 4% gain, followed by financials, materials, and industrials. Health care lagged with a minor decline. Real estate rose over 2% along with a tempering in interest rates.
Foreign stocks fared far better than domestic last week, continuing a stretch of outperformance, with leadership from Europe and emerging markets. European names were helped by positive trends in inflation falling (below 10%), and slightly stronger than expected economic data. Chinese stocks rose 10% to lead all other nations, due to additional relaxations on personal movement and the economy, such as a reopening of the border between Hong Kong and mainland China. Sentiment there continues to improve as hopes that the reopening will spur far stronger economic growth in Q1 and Q2.
Bonds gained several percent on the week, along with hints of weaker economic growth and falling wage growth. Credit spreads also tightened a bit, resulting in corporates outperforming treasuries slightly. Foreign bonds were also positive, led by emerging markets, despite a minor rise in the U.S. dollar for the week.
Commodities fell back last week in nearly all segments, led by a sharp drop in energy, while precious metals earned a small gain. Crude oil fell -8% to just under $74/barrel, due to a major U.S. refinery re-entering production. Natural gas spot prices fell over -17% on the week as warmer weather again appeared in the winter forecast.
|Period ending 1/6/2023||1 Week %||YTD %|
|Bloomberg U.S. Aggregate||1.85||1.85|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.