- In an unusually light week for economic data releases, consumer sentiment improved and jobless claims continued to come in at low levels. Bank lending standards have continued to tighten, due to recession fears.
- Equities were mixed to lower last week, despite little news. Bonds fell back as interest rates ticked higher. Commodities gained overall, as crude oil prices soared.
U.S. stocks ended lower last week on net, with little meaningful economic news to drive sentiment, although large cap stocks outperformed small cap stocks. Most sectors were little changed on the week, with the exception of energy, which gained almost 5% with higher oil prices, and communications, with fell -6%, led by a poor display by Alphabet/Google in an artificial intelligence demonstration. Real estate also fell back -2% along with higher interest rates.
Earlier week gains were driven by Fed Chair Powell’s reiterated remarks about the economy having entered a ‘disinflationary’ phase, although it didn’t fully back away from a hawkish tone if labor conditions remain strong. This was interpreted as positive for a continued wind-down of rate hikes for coming months. (The market obsession with what the Fed is planning is obviously a persistent theme of the past several months.) President Biden’s State of the Union address Tues. evening offered little new policy information, although a ‘unity’ message across the aisle and discussions with House Speaker McCarthy offered hope for a debt ceiling solution before the last minute, to prevent a 2011-like episode. The speech also focused more on domestic economic growth, jobs, and inflation than it did foreign concerns, highlighting what appears to be on the minds of most voters as of late.
Foreign stocks fell back along the same lines as U.S. stocks, with the exception of U.K., which earned a small gain as it was reported that a widely expected recession has again been averted for now with Q4 GDP coming in flat. China slightly underperformed in emerging markets, with negative sentiment surrounding the U.S. shooting down of what was described as a Chinese spy balloon the prior weekend carrying over a bit—as expectations for trade and potential sanctions remain in greater flux. Turkish stocks were the outlier, falling well beyond -10% after the massive earthquake; natural disasters can be expensive infrastructure rebuilds, especially in emerging nations.
Bonds declined on the week as interest rates ticked higher, with strong labor data and a hawkish Fed weighing on hopes for lower interest rates. Treasuries outperformed corporates slightly, but all were generally down to similar degrees, except for bank loans which earned top honors with no change.
Commodities experienced a positive week, due to gains in energy offsetting declines in industrial metals. Crude oil rose almost 9% on the week to just under $80/barrel, due to the EU’s price cap and ban on Russian oil going into effect, as well as Russia’s announcement of a 500k/day cut in production (5% of their output). By their own admission, this was intended to punish Western oil markets and maximize their own revenue. However, there is growing skepticism about the effectiveness of sanctions on Russian petroleum, due high demand from nations such as India and China, as well as the mirky nature of ‘blended’ stock sold globally (i.e. after oil is traded between ships on the high seas, where is no way to tell where it originally came from).
|Period ending 2/10/2023||1 Week %||YTD %|
|Bloomberg U.S. Aggregate||-1.43||1.55|
|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.