Weekly Market Update

Stocks rebounded over 1% on Friday, but the S&P 500 was unable to register its third consecutive week of gains, as weak economic data and a steady stream of speeches from Federal Reserve members undermined growing optimism of a soft economic landing.  Among the week’s bad economic data was the largest month-over-month decline in retail sales in twelve months (-1.1% versus -0.8% consensus) and a producer price index (PPI) that collapsed (-0.5% versus -0.1% consensus).  Initially these weak data points were cheered because they supported optimism around the deceleration of inflation, but in a notable shift for markets, the bad economic news eventually caused markets to move meaningfully lower, as fears of recession and a potential Fed policy mistake trumped inflation considerations.  In addition, multiple Fed members reiterated the higher-for-longer interest rate narrative that the central bank continues to espouse despite encouraging signs of peak inflation.  As a result, the stock market rally in January stumbled as bad news might finally be bad news and investors show some signs of looking beyond the Fed.

Nonetheless, Saturday kicks off a welcomed blackout period for Federal Reserve members to make public comments as we head into the February 1 FOMC meeting announcements.  Fed members have not been bashful in regularly making public remarks about how interest rates need to remain elevated or more hikes are required, and we will not miss the daily headlines reminding investors that the Fed means business.  With inflation data broadly showing signs of deceleration, markets are now pricing in a 99% probability of a 25-basis point hike early next month and with a void in Fedspeak, we expect the Q4 earnings season that heats up next week with almost 20% of S&P 500 companies reporting results, to take center stage.

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

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