Weekly Market Update

After a challenging December, stocks appeared poised for more of the same to start 2023 until Friday’s jobs report and a surprisingly soft services sector report propelled equity and bond markets materially higher for the week.  A stubbornly strong labor market has vexed the Federal Reserve’s desire to rein in inflationary pressures and December’s employment report thread the proverbial needle perfectly.  While more jobs were created last month than expected (223K vs. 205K consensus), bad news for investors who want the Fed to pause its tightening cycle, wage growth came in materially softer than expected (4.6% year-over-year vs. 5% consensus) and hopes of a soft economic landing surged.  Furthermore, the service sector, which the Fed has repeatedly cited as alarmingly inflationary, shocked investors as the December ISM services Index tipped into contraction territory for the first time since May 2020.  As a result, interest rates fell, and bond and stock prices rose materially as financial pundits who have been overwhelmingly cautious on the first half of 2023 were caught totally flat footed. 

Next week will be the first full week of trading in three weeks and today’s softness in wages and services were welcome developments ahead of Tuesday’s hugely important consumer price index (CPI).  The market is looking for a 6.5% year-over-year headline CPI print (per FactSet), down from 7.1% in November and with the next Fed meeting announcements not coming until Feb 1, the direction of the next leg for markets could very well depend on where this inflation number lands.  After 2022, it is admittedly very hard to get overly excited about a one-day +2% pop for the S&P 500, but with prices broadly showing signs of decelerating, mentioning the possibility of a soft economic landing is suddenly much less taboo and the bull narrative strengthened materially.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

Thanks to our clients and friends who have referred business to us over the years. Your endorsement has been the cornerstone of our growth
and our greatest compliment.