ND&S Weekly Commentary 2.13.23 – Markets Take A Breather

 

Markets were lower last week as rising yields continued to put the squeeze on equities and fixed income.

For the week, the S&P 500 declined 1.07%, the DJIA inched lower by 0.11%, and the tech-heavy Nasdaq dropped 2.37%.  The Russell 2000 Small-Cap Index slid 3.34%. International Equity Markets also finished in the red as developed (MSCI-EAFE) and emerging (MSCI-EM) markets gave back 1.56% and 2.40%, respectively. The price of oil (WTI) increased to $78.06 a barrel as Russia announced plans to cut oil production. The price of Gold closed the week, roughly unchanged, at $1,860/oz.

Bonds were also under pressure last week as the yield on the US 10-year Treasury Note rose 0.21% to 3.74% from a week prior. As a result, fixed income measured by the Bloomberg/Barclays U.S. Aggregate, declined 1.45% on the week. Numerous US Federal Reserve officials made the speaking rounds last week and addressed their economic outlook. A strong consensus of “higher for longer” for interest rates appears to have developed in messaging from the central bank. Chair Jerome Powell, speaking to the Economic Club of Washington, D.C. did not go out of his way to protest looser financial conditions. He warned that if tight labor market conditions persist, a higher peak in the Fed’s policy rate may be needed. It would seem that two additional 25bps increases are likely to be on the table.

With about 69% of the constituents of the S&P 500 Index having reported for Q4 2022, earnings are on track for a decline of 5%, while sales rose about 4.7%, compared with the same quarter a year ago, according to data from FactSet Research. Earnings have been a little better than analysts’ have expected with over 70% beating their estimates.

Markets should remain volatile this week as we await economic reports on inflation, retail sales and industrial production. Diversification, patience, and a bias towards quality will help investors manage through this challenging environment.

“Deeds, not Words.” – George Washington