Last Week on Wall Street

Last Week on WallStreet - March 4th, 2023

S&P 500: 1.90% DOW: 1.75% NASDAQ: 2.58% 10-YR: 3.96%

What Happened?

This year's battle between bulls and bears continued last week with buyers regaining control of the overall market following three consecutive weeks of losses for the S&P 500. Service sector data showing economic resiliency and comments from the Atlanta Federal Reserve president pointing to his support for only quarter-point rate hikes from here increased sentiment for investors. The next two weeks will be paramount as markets receive fresh employment and CPI data.

Beneath the surface, 9 of the 11 S&P sectors finished last week with gains. Materials (4.2%), Industrials (3.3%), and Energy (3.2%) led the way higher on hopes of an improved economic outlook. Utilities (-0.5%) was the caboose this week due primarily to its rate sensitivity and Staples (-0.3) lagged on underwhelming financial results from major companies in the sector.


US Services Sector Grows Steadily; Prices Stubbornly High

  • The Institute for Supply Management (ISM) survey on Friday reported steady service sector growth with a PMI of 55.1
    • Readings of 50 and above represent expansion
  • New orders received increased to 62.6 last month, the highest level since November 2021
  • Prices paid for inputs fell to 65.6, the lowest since January 2021, but remain elevated compared to historical readings
  • The survey's measure of employment rose to 54.0; the highest reading since December 2021

The key takeaway - The service sector remains incredibly strong and continues to grow at an impressive clip. While manufacturing hasn't shared in this success, the services industry makes up about two-thirds of the US economy, and growth for these businesses is providing resiliency. This resiliency indicates that the US economy is stronger than many would have expected and strengthens the case of avoiding a recession this year. The primary concern is this level of growth may not allow the economy to slow and inflation to moderate according to the Fed's plans.


Consumer Confidence Slips Again in February

  • The Conference Board reported Tuesday that its consumer confidence index slipped to 102.9 in February, from a reading of 106 in January
  • The group’s present situation index — which measures consumers’ assessment of current business and labor market conditions — ticked up to 152.8 from 151.1
  • The board’s expectations index — a measure of consumers’ six-month outlook for income, business and labor conditions — tumbled to 69.7 in February from 76 in January

The key takeaway - The US consumer has remained a bastion of strength throughout the past year despite the issues that crippled the stock market. Strong services sector and retail figures as of late seem to confirm that consumers are confident enough to spend. Employment has remained strong and inflation has shown signs of some easing, both of which tend to support consumer optimism. This moderating confidence reading, however, could show a chink in the resiliency seen so far. Consumers may begin to cut back on expenditures in anticipation of a recession or as higher borrowing rates weigh on their budgets.


Jeffry Bartash - MarketWatch

US Manufacturing Sector Still Shrinking; Raw Material Prices Rebound

  • Activity at manufacturers contracted for a fourth-straight month as the Institute for Supply Management's manufacturing PMI edges up to 47.7
    • Any figure below 50 indicates contraction
  • New orders data improved from January's reading but remains weak
  • The survey of prices paid for inputs jumped to 51.3, breaking 50 for the first time in 5 months
  • The ISM's employment gauge fell slightly to 49.1

The key takeaway - Manufacturers experienced an intense drop in activity over the last several months and February's reading illustrated a continuation of that weakness. Despite the sluggish overall reading, underlying indicators seem to be improving and some businesses see better dynamics ahead for the sector. The rebound in prices paid does present a concern for businesses and the economy as increased input costs for manufacturers can bleed through to higher inflation.


From the Waterloo Watercooler

Mortgage rates are spiking…again. The average rate on the 30-year fixed mortgage rose for the fourth straight week, to 6.65%

SCOTUS could scrap student loan forgiveness following the initiation of arguments this week

Former FTX exec Nishad Singh became the third member of Sam Bankman-Fried’s inner circle to plead guilty over the crypto exchange’s collapse

Novak Djokovic broke the record for the longest time spent as the No. 1 player in tennis, passing Steffi Graf with 378 weeks as the top dog