Global equity markets finished higher for the week. In the U.S., the S&P 500 Index closed the week at a level of 4,136, representing an increase of 1.64%, while the Russell Midcap Index moved 3.21% higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 3.90% over the week. As developed, international equity performance and emerging markets were mixed, returning 0.46% and -1.18%, respectively. Finally, the 10-year U.S. Treasury yield moved higher, closing the week at 3.52%.
No, this is not a review of any of Clint Eastwood’s movies (although, to some, that would likely be a much more entertaining piece). Instead, our headline for the week references three major events that took place over the past five days of trading and, as one would expect, consisted of the same type of mixed data that investors have grown accustomed to over the past 12 months.
Let’s start with the good. On Wednesday, the Federal Reserve announced its decision of a 25 Bp (0.25%) rate hike, the first such rate assessment in 2023. The hike was widely expected as, according to the CME Group’s Fed Watch tool, there was over a 98% probability of a 25 Bp hike in the 24 hours ahead of the announcement. The good news here is that the hike was in-line with expectations, and we did not receive any shock from Jerome Powell’s comments afterward as he has done after prior FOMC meetings. Markets enjoy certainty, and Wednesday’s 1.05% return on the S&P 500 Index would justify it. The 25 Bp hike is confirmation that peak hawkishness has been met, and although the Fed may, and likely will, continue to raise rates in the immediate future, they will now be executed at a more modest pace.
Now, let’s move to the bad. Friday’s job print was phenomenal. Ironic that this is bad news, right? Nonfarm payrolls rose by 517,000 in January, far exceeding consensus estimates of just 187,000 new jobs, and the unemployment rate fell to 3.4% versus consensus expectations of 3.6%. At the same time, wage growth was also strong, increasing at a 0.3% average hourly rate month-over-month and 4.4% year-over-year. Recession fears and Federal Reserve aggressiveness have been dueling for more than a year, with the recent job report pointing the barrel right at the Federal Reserve. Just two days earlier, Jerome Powell commented on how “robust” job gains have been and that the labor market remained out of balance, yet even those comments could not compete with the Bureau of Labor Statistics (BLS) data.
Lastly, the highly anticipated 4th quarter 2022 earnings from mega-cap companies were reported this past week, and they were ugly. Tech giant Apple (Ticker: AAPL) missed on earnings and revenue with $1.88 EPS vs. $1.94 EPS estimated and $117.15 billion vs. $121.10 billion, respectively, along with overall holiday season sales that were down approximately 5% from 2021. Earnings and revenue for the telecommunications mega-cap, Alphabet (Ticker: GOOGL), missed with $1.05 EPS vs. $1.18 EPS estimated and $76.05 billion vs. $76.53 billion estimated revenue. The consumer discretionary powerhouse Amazon (Ticker: AMZN) also delivered mixed results of $0.03 EPS vs. $0.18 EPS estimated but beat on revenues by providing $149.2 billion vs. $145.42 billion estimated. Due to their size and influence, markets have no choice but to weigh these earnings heavily in their outlooks for the economy and markets for the balance of 2023.
Investors should consider all the information discussed within this market update and many other factors when managing their investment portfolios. However, with so much data and so little time to digest, we encourage investors to work with experienced financial professionals to help process all this information to build and manage the asset allocations within their portfolios consistent with their objectives, timeframe, and tolerance for risk.
Best wishes for the week ahead!
Unemployment and Labor Market data sourced from the U.S. Bureau of Labor Statistics on 2/3/2023. Earnings data and estimates were sourced from Bloomberg and Refinitiv, respectively. Equity Market, Fixed Income returns, and rates are from Bloomberg as of 2/3/23. Economic Calendar Data from Econoday as of 2/3/23. International developed markets are measured by the MSCI EAFE Index, emerging markets are measured by the MSCI EM Index, and U.S. Large Caps are defined by the S&P 500 Index. Sector performance is measured using the GICS methodology.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.