When Head and Shoulders would be Good
Softening Pressure:
U.S. markets are closed today owing to the MLK holiday.
Last week, on the back of softening CPI inflation pressure, and the hope of the Federal Reserve moving more slowly in 2023, the S&P500 index rose +2.7% last week. The index is now up over 4% year to date but still down almost -13% on a total return basis for the last 12 months. Index performance ranged from +4.8% for the growth NASDAQ to +2.0% for the Dow Jones index which is more value biased.
Sector-wise, 2022 laggards have been 2023 leaders. Consumer discretionary stocks had the largest percentage increase last week, up +5.8% (Think Amazon and Tesla). The next best group was Technology with a +4.6% rise (software, solar, and semis), and then real estate rose +4.4%. Only two sectors were down for the week. 2022 leading groups consumer staples (food and beverages) fell -1.5% and health care slipped -0.2%.
On the fixed income and bond side last week, prices rallied, and Treasury yields were lower across all maturities ranging from 9 bps at the 5-year note to only 2bps on the 2-year note. The U.S. dollar fell another – 1.7% last week continuing its pullback from its early October 2022 high. Its decline has been a tailwind for US equities over the last 3 months.
Earnings season began late last week with banks and financials starting the three-week press release and conference call parade. JPMorgan Chase (JPM) reported Q4 per-share earnings and revenue above analysts’ estimates. The stock initially dropped almost -5% pre-open but closed Friday up +2.5% on the news that the bank would be able to re-start their share buyback program a quarter early.
4th quarter 2022 earnings season accelerates this week with Morgan Stanley (MS), Goldman Sachs (GS), United Airlines (UAL), Charles Schwab (SCHW), Procter & Gamble (PG), Netflix (NFLX) and Schlumberger (SLB) all large-cap bellwethers reporting.
Core US CPI, excluding food and energy, rose +5.7% year over year in December, down from a +6% increase in November. Faster time series using 1-month data, and 3-month and 6-month moving averages are dropping more rapidly. In fact, 6-month annualized headline CPI inflation is already below the Fed’s 2% goal due to consumer goods inflation plummeting. Even core services inflation ex the slow-moving shelter component has dropped below 3% currently.
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Keeping you Connected to Your Money: 1st Half 2023 Outlook – The “Old Normal” Part 2
