S&P 500: 1.45% DOW: 1.46% NASDAQ: 0.98% 10-YR: 3.56%
Last Week on WallStreet - January 7, 2023
Welcome to 2023 everyone. After what was a dismal 2022, investors are hoping for a reversal in stock performance as they refresh the calendar. Markets provided just that in the first week of the year with a rip-roaring Friday session making up for the losses taken early in the week. Hawkish FOMC minutes and preliminary jobs data forced equities to lag in the early sessions. Friday's employment report and ISM Services Index figures both showed signs of moderating inflation which fed optimism of less Federal Reserve action and sent the indices flying up over 2% for the day alone.
Beneath the surface, most sectors rounded out the week with gains as Communication (5.1%), Financials (3.2%), and Materials (2.7%) led the way. Only two sectors, Healthcare (-0.5%)and Utilities (-0.3%), finished Friday's session lower.
No Fed Official Expects an Interest-Rate Cut to be Appropriate This Year, Minutes Show
- Fed officials welcomed recent inflation data that showed reductions in the monthly pace of price increases but wanted to see a lot more evidence of progress to be convinced inflation was on a sustained downward path
- Officials indicated that if markets start to ease financial conditions, that would complicate their efforts to restore price stability
- Members said upside risks to inflation remained a key factor in shaping policy
The key takeaway - The Fed's December meeting minutes reveal a slightly more hawkish stance than markets expected and provide insight into how they are processing the market reactions to their policy. Despite all members expecting no cuts in 2023, the market disagrees and has priced in cuts as early as this summer. The ultimate goal of the central bank is to get inflation down to its 2% target and they have reiterated their commitment to this on countless occasions, but if conditions remain loose, they may have to cause more pain to resolve the issue.
U.S. Adds Robust 223,000 Jobs in December. Wage Growth Slows in Sign of Ebbing Inflation Pressures
- The U.S. generated 223,000 new jobs in December to mark the smallest increase in two years but surprised the expected increase of 200,000
- The unemployment rate, meanwhile, slipped to 3.5% from 3.6% matching the lowest level since 1969
- Hourly pay rose a modest 0.3% last month and moderated to 4.6% versus 12 months ago
- The labor force participation rate rose just slightly to 62.3%
The key takeaway - The labor market remains a significant input to the Fed's math for its policy stance and its strength is likely to indicate they have room to work with even as other indicators for the economy weaken. However, it also means that this labor market may remain tight and hinder their ability to bring down inflation via demand destruction. Wage growth moderating is an incredibly welcome sight and quells fears of a wage-price spiral anchoring inflation higher.
First Negative ISM Reading Since Early Pandemicis More Proof U.S. Economy is Slowing
- A barometer of U.S. business conditions at service-oriented companies such as retailers and restaurants fell to 49.6% in December and turned negative for the first time since early in the pandemic
- The reading slowed sharply from 56.5%, indicating strong growth, into contractionary territory
- Production and new orders, indications of demand for services, both declined harshly
- The prices paid index fell to its lowest level since January 2021
The key takeaway - The area of the economy that has posted relatively strong results over the past few months is showing signs of significant erosion and adds to the market's recessionary fears. The immense increase in interest rates is being felt as consumers and businesses cut back on spending. THe report wasn't all bad, though, as the employment and prices-paid figures show the labor market may be loosening and price increases may be moderating.
From the Waterloo Watercooler
Russian President Vladimir Putin ordered his military to observe a 36-hour ceasefire for Orthodox Christmas
Buffalo Bills safety Damar Hamlin is breathing on his own and able to talk after remaining in critical condition for four days since his collapse on the field Monday.
The 118th Congress remains speaker-less after a second day in which GOP Rep. Kevin McCarthy failed to scrounge up enough votes from his colleagues.