Weekly Market Update

Stocks and bonds both registered their second consecutive weeks of gains as Thursday’s much anticipated consumer price index (CPI) came in largely as expected and forecasts around the size of the interest rate hike following the Federal Reserve’s meeting announcements on February 1st have declined from 50 basis points (0.5%) to 25 basis points (0.25%).  To be clear, inflation remains elevated at 6.5% year-over-year, but the CPI index has now decelerated for six consecutive months after peaking at 9.1% in June and investors are growing more and more confident that the Federal Reserve is closer to the end of its tightening cycle than the beginning.  Further bolstering the peak inflation narrative was Friday’s Michigan Survey of Consumer Sentiment that showed respondents’ one-year inflation expectations fell to their lowest levels since April 2021.  As a result, the S&P 500 heads into the long weekend up over 4% year-to-date while the Bloomberg US Aggregate bond index is up over 3%.

Investor attentions will now shift to the fourth quarter S&P 500 earnings season as bears are predicting a precipitous decline in corporate profits as the lagged effects of tighter monetary policy and global economic contraction begins to really hit corporate profits - or so they say.  The Q4 earnings season unofficially kicked off on Friday with Bank of America, JPMorgan, and Citigroup headlining the action, but while commentary from management was certainly downbeat, results largely beat expectations.  Ultimately, the consensus estimate for Q4 earnings growth has already come down from about 3.5% at the end of September 2022 to -4.5% today, the first year-over-year EPS decline since Q3 2020.  Therefore, if we can get a better than feared earnings season, we suspect that bears for the first time in a long time might be feeling quite vulnerable.

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.