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Weekly Market Commentary

Weekly Market Commentary – 1/6/2023

-Darren Leavitt, CFA

The start of the New Year brought volatility with it. Markets sold off early in the week and tested a critical technical level on the S&P 500 (3800), then bounced significantly to regain support and end the week with a nice gain. Investors heard from several Federal Reserve officials, viewed the December FOMC minutes, and were provided plenty of economic data to digest. Also of note was the stalemate in Congress to appoint the next Speaker of the House and more layoffs announced at tech stalwarts Amazon and Salesforce.com.

Federal Reserve rhetoric continued to be hawkish as Bullard, George, and Kashkari reminded investors that rates will likely need to be higher and higher for longer. Kashkari was perhaps the most hawkish suggesting the Fed’s policy rate would need to go to 5.4% and maybe more if inflation continued to be persistent. The rhetoric was echoed in the December FOMC minutes, where all participants indicated there would not be a rate cut in 2023.

This week, investors were focused on the labor market data for clues on what the Fed might do in their next meeting. JOLTS data continued to show robust job openings with a print of 10.458 million. ADP data showed a much stronger pick-up in new payrolls, 235k versus the street estimate of 169k. High-frequency data on initial and continuing claims showed little signs of a cooling labor market. Initial Claims came in at 204k; the street was looking for 230k. Continuing claims fell to 1694k from 1718k in the prior week. The December Employment situation report showed 223k Non-Farm Payrolls were created and 220k Private Payrolls. Both metrics were stronger than expected. Surprisingly, the Unemployment rate fell to 3.5% from 3.7% in November. The most confounding data came from the Average Hourly Earnings, where wage growth decelerated to 0.3% from a revised 0.4% reading in November.  Interestingly, wages grew faster in goods-producing jobs while service wages grew slower. Markets cheered the news on the notion that the economy may be able to avoid recession as wage growth decelerates. Notably, ISM Manufacturing and Non-Manufacturing data showed continued slowing, and both economic areas are now in contraction.

The S&P 500 gained 1.4%, the Dow increased by 1.5%, the NASDAQ climbed 1%, and the Russell 2000 inked an advance of 1.8%. US Treasuries rallied across the curve, sending yields significantly lower. The 2-year yield fell by fifteen basis points to 4.27%, while the 10-year yield fell by thirty-two basis points to 3.56%. Oil prices fell 7.7% or $6.16 to $73.74 a barrel. Gold prices increased by 2.2%, closing at $1869.30 an Oz.  Copper prices also rallied 2.6% or $0.10 to close at 3.91 an Lb.

Investment advisory services offered through Foundations Investment Advisors, LLC (“FIA”), an SEC registered investment adviser. FIA’s Darren Leavitt authors this commentary which may include information and statistical data obtained from and/or prepared by third party sources that FIA deems reliable but in no way does FIA guarantee the accuracy or completeness.  All such third party information and statistical data contained herein is subject to change without notice.  Nothing herein constitutes legal, tax or investment advice or any recommendation that any security, portfolio of securities, or investment strategy is suitable for any specific person.  Personal investment advice can only be rendered after the engagement of FIA for services, execution of required documentation, including receipt of required disclosures.  All investments involve risk and past performance is no guarantee of future results. For registration information on FIA, please go to https://adviserinfo.sec.gov/ and search by our firm name or by our CRD #175083. Advisory services are only offered to clients or prospective clients where FIA and its representatives are properly licensed or exempted.

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