Hey Folks, a very strong start to 2023. Market statistics would suggest that a strong start to the year means the markets will have a strong finish. But post Covid we’ve seen a lot of conflicting data points from a historical perspective so could this simply be another one? Time will tell. Get my take on the current market action here in our Weekly Round-Up.
WEEKLY SOUND BITES:
Most of the major US indexes extended their winning streaks into February, helped by some upside surprises in economic data and fourth-quarter earnings reports, as well as what some saw as encouraging signals from the Federal Reserve. On Thursday, the S&P 500 marked its first “golden cross” in two-and-a-half years, as the index’s 50-day moving average drifted slightly above its 200-day average. Heavy “short covering,” or the buying of stocks by hedge funds and others to cover their bets that the stock’s price will fall, also appeared to be at work.
The busiest week of quarterly earnings reports—companies representing roughly a third of the S&P 500’s market capitalization released results—coincided with a string of closely watched economic reports, resulting in multiple crosswinds for investors to consider. Friday’s economic data brought major surprises that caused investors to reconsider their rate expectations and sent bond yields sharply higher. The Labor Department reported that employers added 517,000 nonfarm jobs in January, roughly triple consensus estimates and the biggest gain in six months. The unemployment rate slipped to 3.4%, its lowest level since 1969. Friday’s other surprise was January’s jump in services sector activity. The Institute for Supply Management reported that its index of nonmanufacturing activity jumped to 55.2 from 49.2 in December, reversing nearly all its steep drop in December and moving it well back into expansion territory.
On Wednesday, the Fed raised official short-term interest rates by another 25 bps, as was widely expected, while the overall tone of “Boom Boom” Powell’s remarks during his press conference helped support a bullish market.
Over in Europe the ECB raised its key interest rates by 50 bps, taking the deposit rate to 2.5%. The central bank expects to raise rates by the same amount in March due to underlying inflation pressures. The latest data showed the headline rate of inflation in the eurozone cooled more than expected in January to an annual rate of 8.5%, from 9.2% the previous month. But core inflation—excluding changes in food and energy prices—remained at an all-time high of 5.2%. The eurozone economy unexpectedly grew 0.1% in the last three months of 2022. And in the UK, the BoE’s nine policymakers voted 7-2 to raise the key interest rate by 50 bps to 4%, in line with expectations.
In Japan, on the economic data front, industrial production fell 0.1% month on month in December, a smaller-than-expected decline, while annualized retail sales growth of 3.8% beat expectations on a continued post-pandemic recovery in consumption. Consumer confidence improved in January, while the unemployment rate was unchanged.
And in China, their official manufacturing Purchasing Managers’ Index (PMI) rose to 50.1 in January from December’s 47.0. This marked a return to growth for the first time since September as domestic activity improved after Beijing abandoned its coronavirus restrictions at year-end. And the nonmanufacturing PMI rose to a better-than-expected 54.4 from 41.6, reaching its highest reading since June. Meanwhile, the IMF raised its annual growth forecast for China as the economy rebounds following the removal of pandemic curbs. The IMF projected that China’s economy would grow 5.2% this year, up from its October forecast of 4.4%, and kept its estimate for 2024 at 4.5%.
Enjoy this Week’s Round-Up.
Don’t Be a Rat Brain Trader – Be the Red Strip Zebra!!