Last Week on WallStreet - January 14, 2023

S&P 500: 2.67% DOW: 2.00% NASDAQ: 4.82% 10-YR: 3.51%

What Happened?

Markets followed-up last Friday's monster rally with its best performing week since November. The buying pressure carried over as the indexes remained in the green for nearly the entire week. Thursday's CPI report showed inflation moderated in line with expectations elevating hopes of a decelerating Fed hiking cycle. Strengthening consumer sentiment data bolstered markets move upwards as investors shrugged off an expected softening in bank earnings.

Beneath the surface, all but two sectors finished the week with gains. Cyclical stocks ripped with Discretionary (5.8%) and Technology (4.6%) leading the pack. Defensive names such as Staples (-1.4%), Healthcare (-0.2%), and Utilities (0.5%) lagged behind the broader rally.


Inflation Slows Again and Clears Path for Slower Fed Rate Hikes

  • The U.S. cost of living fell 0.1% in December, in line with expectations, and posted the first decline since the onset of the pandemic in 2020
  • The annual rate of inflation fell for the sixth month in a row to 6.5% from 7.1%
  • The so-called core rate of inflation, which omits food and energy, rose 0.3% also matching forecasts
  • Gasoline prices fell again at year end to hold down the headline CPI

The key takeaway - Inflation is moderating meaningfully but remains well above the Federal Reserve's target and likely isn't falling quickly enough for their liking. While most areas have seen easing price pressures, wage growth is retaining its strength and presents a material issue if not mitigated. Shelter prices rose again in December and, being the largest CPI input, also poses a challenge. In summation, we are seeing real progress in the inflation battle but there remain upside risks that could keep price growth elevated and the Fed hawkish.


Consumer Sentiment Jumps to 9-Month High as Inflation Ebbs and Stocks Rebound

  • A survey of consumer sentiment rose to 64.6 in January and hit nine-month high, reflecting easing worries about inflation and Americans' greater confidence in their own finances
  • Consumer sentiment is still weak, though. The index is well off a Coronavirus-era peak of 88.3
  • Consumers surveyed see inflation moderating with the 1-year inflation expectation falling from 4.4% to 4.0%
  • Longer-term, those surveyed see inflation falling to 3% - above the Federal Reserve's target

The key takeaway - Americans' are more confident as items closer to home, gas prices, stock returns, etc., all provided reason for optimism over the last month. However, they remain uneasy overall as the uncertain economic outlook and rising rates present causes for concern. Of particular importance is the consumer's outlook for inflation which indicates to what extent expectations of rising prices are entrenched into American psyche. The Fed will not take lightly that consumers forecast long-term inflation rates above their target.


From the Waterloo Watercooler

Damar Hamlin was released from the hospital Wednesday, nine days after collapsing on the field during a Buffalo Bills game

Subway is mulling the idea of a sale that would value the sandwich chain at more than $10 billion, per the WSJ

Goldman Sachs will begin laying off up to 3,200 employees (~6% of its total workforce) as part of its largest cost-cutting efforts since the 2008 financial crisis

President Biden declared an emergency in California Monday after a slew of winter storms drenched the state