The Weekly Wrap: January 30, 2023

Week in Review

Stock prices continue to rise in 2023, led by last year’s laggards. The growth-concentrated NASDAQ Composite, which fell 33% in 2022, has jumped 11% in January. The value-tilted Dow Jones Industrial Average is up only 2.5%. The more balanced S&P 500 index has climbed just over 6% to start the year. Interest rates rose last week, pushing the price of 10-year Treasury bonds down 0.7%, while the US Dollar Index was flat. Bitcoin continued to rebound, climbing another 1%, and gold prices rose moderately. Crude oil has been volatile to start the year. It fell 2% last week, but is down less than 1% for the month.

This week, the Federal Reserve will give us insights into how it is evaluating recent inflation readings. December’s measures for the Consumer Price Index, the Personal Consumption Expenditures price deflator, and the Producer Price Index all showed a marked deceleration. That’s given investors the confidence to reduce their expectations for rate hikes and increase their expected odds of avoiding a Fed-induced recession. Another rate hike is expected on Wednesday, but markets will key in on Chairman Jerome Powell’s post-meeting press conference for clues on when the series of hikes will end.

Market Internals

The advance in stock prices to start the year has been broad-based among risk-on sectors. More than 80% of stocks in growth areas like Information Technology, Consumer Discretionary, and Communication Services are above their 20, 50, and 100-day moving average prices. In value sectors, 70% of members are above those same levels.

A less rosy picture exists for sectors traditionally associated with avoiding risk. Only a third of Consumer Staples and Utilities stocks are above short-term averages, and less than half are above long-term average prices. It’s clear that in recent months, the marginal investor’s focus has shifted away from preserving capital and towards growing it.

What’s Ahead

It’s Fed week, with the latest interest rate decision set for release on Wednesday afternoon. It’ll be followed by the usual press conference by Jerome Powell. Before then, we’ll get an update on manufacturing activity from the Dallas Fed (Monday), updated home prices for November, Consumer Confidence, and the Chicago PMI index (Tuesday), and a flurry of data on Wednesday morning. That will include ADP’s employment change estimate for January, job openings for December, and manufacturing PMIs from both S&P Global and the Institute for Supply Management. On Thursday, we’ll get an update on nonfarm productivity and labor costs from the fourth quarter. The services components of the aforementioned PMI surveys are published on Friday, but they’ll most likely be overshadowed by the nonfarm payrolls report scheduled for that morning. If all that isn’t enough, we’re also in the heart of Q4 earnings season. More than 20% of the S&P 500 will report results in the coming week.

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