Sunday, January 8, 2023

Constructive data set 2023 off on a positive note Weekly Market Update: Constructive data set 2023 off on a positive note

1/6/2023 4:06:11 PM

Investors opened 2023 with a lot of economic data and Federal Reserve speak to sift through as many returned from a long holiday break. It started with encouraging signals that European CPI has peaked. Softer than expected headline readings in Germany and France were echoed across the rest of the continent, though officials were quick to point out core inflation remained too sticky. Those headlines were somewhat offset by stubbornly strong US employment readings including JOLTS, jobless claims, and the December ADP employment report. Large cap US tech stocks remained decidedly weak while it was clear investors were bargain hunting in other areas of equities, including overseas, following the heavy selling seen through much of 2022. Rates started to drift higher amid a steady drumbeat of hawkish rhetoric from central banks, in particular from the US Fed. Heading into Friday’s session, the US 2-yield was nearing 4.5%, the spread between the 3-month T-bill and 10-year crossed below -90 basis points for the first time in more than 20-years, and futures markets were once again projecting the Fed funds rate to move above 5% for the first time in weeks. The S&P tested support at 3,800 on several occasions but was holding.

The anxiety heading into the December jobs report abated quickly when the data was released Friday morning. Investors looked past a surprise drop in the unemployment rate to 3.5%, hoping the Fed will choose to focus on signs of cooling wage growth and a welcomed rise in the labor force participation rate. Stocks prices rose and bond yields slumped led by declines at the short end of the Treasury curve. After the opening bell large cap tech saw early selling pressures yet again, briefly dipping the NASDAQ into the red before a very soft December ISM services print pushed stock indices to new highs on the week. The US 2-year yield dropped more than 20 bps from pre-release levels while the curve saw modest steepening. The US dollar relinquished early gains and moved lower while gold prices neared a 6-month high above $1,865. US natural gas futures extended losses to the lowest level in last 18 months. Stocks continued to climb through Friday's session despite additional hawkish pushback from Fed officials. Atlanta Fed President Bostic noted that the Dec jobs report did not change his outlook, and that he still expects rates to move above 5% and hold there well into 2024. For the week, the S&P gained 1.4%, the DJIA was up 1.5%, and the Nasdaq rose 1%.

In corporate news this week, layoffs continued in big tech as Amazon reportedly planned to let go even more workers than previously expected. Tesla had another rough ride as Q4 deliveries came in below expectations and the company implemented price cuts across China, Japan and Korea. Southwest confirmed cuts to its guidance based on its December weather-related cancellations, but shares managed to rally after the mea culpa. Investors bought Costco shares in bulk after the big box retailer reported solid same store sales growth in December, improving over the results seen in the prior two months. The FDA granted accelerated approval for the new Alzheimer’s disease treatment Leqembi from Eisai, and its partner Biogen saw share price gains. In M&A news, reports said that Western Digital has revived takeover talks with Japan’s Kioxia, a potential deal that could lead to an entity controlling a third of the NAND market.