Weekly Market Update

The S&P 500 registered its third week of declines as hopes that inflation would begin to collapse have soured and interest rates have therefore moved higher.  Continuing the recent trend of hotter-than-expected inflationary data, this week we saw the Federal Reserve’s preferred inflation gauge, the core PCE Price Index, also come in hotter than expected - 4.7% year-over-year versus 4.3% consensus estimates.  As a result, investors are acknowledging that high inflation might be stickier than hoped and interest rates have steadily ticked higher and are back at levels last seen around November.  Stocks have now given back about half of the nearly 9% year-to-date returns the S&P 500 enjoyed near its recent peak in early February and investors are now trying to figure out if this is a healthy pullback after one of the best starts to a year in decades, or the beginning of another leg lower.

The Fed and the direction of interest rates seem to be the biggest drivers of investor sentiment right now, but the fourth quarter (Q4) earnings season for the S&P 500 is now almost complete.  If the Q4 reporting season were to end today, S&P 500 earnings for the quarter would decline by -4.8%, the first year-over-year EPS contraction since Q3 2020 (per FactSet).  However, expectations were quite low, and results were somewhat bifurcated with five of the eleven S&P 500 sectors actually reporting year-over-year earnings growth.  While inflation has recently proven more persistent than many had hoped, we did find the chart below interesting.  The mention of “inflation” in Q4 earnings calls markedly declined (see chart below) and hopefully this bodes well for the February CPI release in the middle of March.

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.