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Financial Market Update – Week of 01/16

January 16, 2023

Broad market sentiment improved further last week as attention turned to moderating inflation data. Major U.S. equity indexes liked the data and notched their second consecutive week of gains to start 2023. 

Summarizing last week’s trading, the large-cap S&P 500 added 2.67%, the Nasdaq 100 increased by 4.54%, and the Dow Jones Industrial Average rose by 2.00%.

Inflation Declines

It’s what market watchers wanted to see: declining consumer inflation. Estimates projected a year-over-year rise of 6.5%, and the data showed just that. 

The CPI reading marked the smallest annual increase since October 2021. Core inflation (which removes volatile food and energy from the metric) rose 0.3% month-over-month, matching analyst expectations.

Broader markets posted small gains Wednesday on the data release, and buyers followed through on Thursday and Friday, with both higher days for the S&P 500.

Small-Caps Outperform Last Week

The benchmark U.S. small-cap stock index, the Russell 2000, rose steadily last week. Outperforming other major market indexes for the week, the $RUT tacked on gains of 5.26% overall last week.

2022 was a dismal year for small-caps, with the Russell 2000 Index lagging behind its larger-cap index counterparts.

In addition, the iShares Russell 2000 ETF ($IWM) broke above its 200-day moving average last week, which is interpreted as a bullish indicator by market technicians.

Cryptocurrency Rebounds

Crypto had quite the week too, with large-caps like Bitcoin and Ethereum moving higher and smaller altcoins catching a bid. Heavy short covering and liquidations were noted in last week’s trade.

Market participants welcome the move and change in sentiment after the FTX collapse in November. Solana, a cryptocurrency that declined severely in 2022 both before and after the FTX fiasco, had an especially notable week of gains.

Slower and/or smaller rate hikes from the Federal Reserve could help shift sentiment in the space as more uses for blockchain are in development.

Oil Bounce

February West Texas Intermediate crude oil futures traded north of $79 a barrel last week, courtesy of an improved Chinese demand outlook.

Winter has been mild so far in the U.S., keeping somewhat of a lid on home heating oil prices for many Americans. This is a welcome reprieve after surging inflation. The U.S. average heating oil price was $4.545 per gallon as of January 9th, making a typical residential 275-gallon heating oil tank about $1,250 to fill. Not exactly inexpensive for many folks in the Northeast!

Slight Decline in Treasury Yields 

US 10-year yields retreated marginally last week as investors digested a rather complex picture of declining inflation prints and expectations for future Fed rate hikes. The 10-year note yield settled at 3.51% at the conclusion of last Friday’s trading. 

Busy Week Ahead

U.S. stock markets are closed on Monday, January 16th, in observance of Martin Luther King Jr. Day. From Tuesday to Friday, there are several important economic data releases. At the same time, we have the World Economic Forum (WEF) annual meetings for the duration of the week.

Here are just a few of the economic data highlights for this week (all times EST):

  • Monday – Friday – WEF annual meetings
  • Tuesday 8:30 a.m. Empire State Manufacturing Index
  • Tuesday 3:00 p.m. – Federal Open Market Committee (FOMC) Member John C. Williams speaks
  • Wednesday 8:30 a.m. – PPI, Core PPI
  • Wednesday 8:30 a.m. – Retail Sales, Core Retail Sales
  • Wednesday 2:00 p.m. – FOMC Member Patrick Harker speaks
  • Wednesday 5:00 p.m. – FOMC Member Lorie K. Logan speaks
  • Thursday 8:30 a.m. – Philly Fed Manufacturing Index
  • Thursday 8:30 a.m. – Unemployment Claims
  • Thursday 8:30 a.m. – Housing Starts
  • Thursday 8:30 a.m. – Building Permits
  • Thursday 1:15 p.m. – FOMC Member Lael Brainard speaks
  • Thursday 6:35 p.m. – FOMC Member John C. Williams speaks
  • Friday 9:00 a.m. – FOMC Member Patrick Harker speaks
  • Friday 10:00 a.m. – Existing Home Sales
  • Friday 1:00 p.m. – FOMC Member Christopher J. Waller speaks 

I point out this action-packed schedule on this short week, as this schedule offers much more Fedspeak than usual. Given last week’s decline in CPI, market participants will be seeking Fed guidance on interest rate policy. Any signs of a less aggressive Fed should gather attention from market bulls.

The Takeaway

Rising energy prices last week and risk-on cryptocurrency price improvement tell a preliminary story of sentiment improvement so far in 2023. Strength in outside markets such as these can be constructive for the overall tone of U.S. equity markets.

In fact, we now have two trading weeks in the books for 2023, and the broader equity and consumer sentiment feels like it has improved a bit. A notable improvement in consumer inflation is very constructive and has contributed to quelling downside volatility in the broader equity market indexes. However, risks remain with the global slowdown, inflation, and interest rates. 


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December 19, 2022

Major U.S. stock indexes fell last week amid another decline in monthly consumer inflation and a somewhat hawkish tone at the final Federal Reserve meeting of 2022.

Overall, the S&P 500 fell by 2.09%, the Nasdaq 100 lost 2.76%, and the Dow Jones Industrial Average decreased by 1.66%.

Lower Inflation Print

Prices in the U.S. rose 7.1% year-over-year in November, marking the lowest year-over-year increase since December 2021.

Core inflation, which excludes food and energy, rose by 0.2% month-over-month, standing as the lowest monthly rise since August 2021. This data release offered an encouraging sign in the inflation battle.

Inflation Nuggets

Looking under the hood of the CPI data,  the high-flying used vehicle market appeared to be pulling back in November, with a 2.4% month-over-month decline in pricing. Prices remain elevated, however, and there is little overall cost relief for consumers financing their purchases amid rising interest rates.

In addition, energy and energy service costs declined in November, while shelter and food pricing remained elevated.

Federal Reserve: 50 Basis Point Hike

As expected, the Federal Reserve raised the benchmark interest rate by 0.50% last week. No surprise there, and it was a welcome decline after four sequential 0.75% hikes. 

The seventh and final rate hike of 2022 is in the books, and the U.S. benchmark lending rate currently sits at 4.25% – 4.50%, the highest rate in 15 years.

Seemingly Hawkish Fed Tone

While the Fed rate hike was at a lower increment than previous hikes in 2022, Fed officials expect to keep the overnight lending rate higher in 2023 than previously expected.

The forecasted Fed terminal rate (the highest rate of the tightening cycle) is now 5.1%, with a target range of 5.00% – 5.25%. Previous Fed estimates from September were for a terminal rate target of 4.6%.

The hawkish rhetoric (forecasting higher rates for longer) had a souring effect on equities and largely contributed to the overall market declines last week.

World Central Banks

The U.S. Fed was not alone in the global rate-hike crusade last week. Central banks across the globe, including in the United Kingdom, the European Union, and Switzerland, hiked their key lending rate by 50 basis points as well.

In a notable comment, Bank of England Governor Andrew Bailey told broadcasters that inflation will likely start falling “more rapidly” starting in the late spring of next year.

The United Kingdom’s benchmark lending rate now sits at 3.5%, as U.K. CPI dropped from a 41-year high of 11.1% to 10.7%.

Abandoned Carts

Inflation showing its second straight monthly decline did not seem to help consumer spending in November. 

Retail sales for November fell 0.6% month-over-month, which is the largest decline in 11 months. The report, released last Thursday, followed the encouraging CPI data on Tuesday and the hawkish-sounding Fed on Wednesday.

It was a busy week for the markets, and the Fed commentary on higher rates as well as the softer retail sales data dwarfed the pullback in CPI as recession fears continued to weigh.

Growth vs. Value

According to data from FactSet, many analysts expect that the 2022 S&P 500 growth rate will average 5.1%, well below the average yearly earnings growth over the last ten years of 8.5%.

In the rising interest rate environment that has been 2022, value investors have enjoyed a resurgence, with October standing as one of their best months since 1978 by some metrics.

Heading into 2023, analysts will be weighing the Fed’s speed, intensity, and rhetoric when it comes to the question of growth vs. value. Higher interest rates increase the cost of borrowing and can erode companies’ future earnings and growth prospects.

The Week Ahead

The economic data calendar is a quiet one heading into the Christmas weekend. U.S. equity markets will be closed on Monday, December 26th, in observance of Christmas.

We will get the Fed’s preferred gauge of inflation via the personal consumption expenditures (PCE) metric and consumer confidence data this week. A decline in the PCE would likely be constructive for the markets, providing some confirmation of the CPI data from last week.

Home Stretch

With two weeks left in 2022, it’s an opportune time to discuss your investment objectives. For example, your goals – have they changed or do they remain the same? Have you discussed your capital gains/losses situation with your tax advisor – is tax loss harvesting appropriate for you?


Links to third-party websites are for general information purposes only and do not constitute any offer or solicitation to buy or sell any services or products of any kind. The other parties are responsible for the content on their website(s). You are encouraged to read and evaluate the privacy and security policies on the specific site you are entering. They are not intended and should not be relied upon as investment, insurance, financial, tax, or legal advice.