Weekly Commentary (1/23/23) – Markets Mostly Lower on the Week

Equity markets finished mostly lower last week as investors digested fourth quarter earnings reports and recent economic releases.

For the week, the DJIA lost 2.7% while the S&P 500 dropped 0.7%. The tech-heavy Nasdaq finished up 0.6%. For the week, the MSCI EAFE Index inched higher by 0.01% while emerging market equities (MSCI EM) gained 0.6%. Small company stocks, represented by the Russell 2000, lost 1.0%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished higher by 0.2% for the week as yields moved slightly lower. As a result, the 10 YR US Treasury closed at a yield of 3.48% (down 1bps from the previous week’s closing yield of ~3.49%) as investors were drawn to decent yields and the perceived safety of treasuries. Gold prices closed at $1,926.40/oz – up 0.42%. Oil prices moved up 1.8% to $81.31 as China’s reopening added to demand pressures.

Economic news released last week confirmed a weakening in the economy. December retail sales fell sharply while manufacturing PMIs, industrial production and regional Fed surveys all confirmed a slowdown in the US economy. The Fed’s pursuit of higher interest rates is, naturally, having a negative effect on consumers and businesses. The consumer represents roughly 70% of GDP so any slowdown in consumer spending will necessarily impact our overall economy. The Federal Reserve meets next Tuesday and Wednesday, and investors are anticipating a 25 or 50 basis point rate increase. The good news is that the Fed is almost done with their tightening.

Markets are off to a decent start this year as investors have been looking through the noise to find bargains after last year’s ugly market. We expect continued volatility until we see more clarity from the Fed and the impact of their aggressive tightening. Diversification, patience, and a bias towards quality will help investors manage through this period of uncertainty.

Stay safe!

“If you fell down yesterday, stand up today.” – H.G. Wells