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Weekly Market Update, March 6, 2023

GENERAL MARKET NEWS

This month marks one year since the Federal Open Market Committee (FOMC) began its unprecedented rate hiking journey and, although the grip has loosened, inflation still has its talons in the U.S. economy. January proved to be a headache for Federal Reserve (Fed) officials as progress on cooling inflation slowed, spending was stronger than expected, and the job market continued to run hot. As we approach the March 22 FOMC rate decision, the question still stands as to how this data will develop and affect policy moving forward. “It could be that progress has stalled, or it is possible that the numbers released last month were a blip, perhaps associated with unusually favorable weather, and that forthcoming data will show that economic activity and inflation resumed their decline” explained Fed Governor Chris Waller. “On the other hand, if those data reports continue to come in too hot, the policy target range will have to be raised this year even more to ensure that we do not lose the momentum that was in place before the data for January were released.” U.S. Treasury yields saw modest increases last week. The 2-year, 5-year, 10-year, and 30-year gained 6 basis points (bps) (to 4.88 percent), 7 bps (to 4.29 percent), 7 bps (to 4.02 percent), and 3 bps (to 3.96 percent), respectively.

The Nasdaq Composite led the way for global gains last week. U.S. Treasury yields continued their march higher after a sharp rise at the start of February following the first Federal meeting of the year, and a January jobs report that came in above expectations. Yields took a bit of a breather, which supported growth stocks reliant on lower rates. The Russell 1000 Growth Index outperformed the Russell 1000 Value Index by 95 basis points as it rose by 2.48 percent. Cyclical stocks remained in favor as materials, communication services, industrials, and energy were all among top performers. Consumer staples, health care, and financials were among the worst performers. This cyclical recovery is indicative of a broader global reopening from the Covid-19 pandemic and will be something to watch as additional employment and inflationary data is released.

Last week’s data focused on the consumer and business confidence, kicking off with the release of durable goods orders on Tuesday. Headline durable goods orders fell more than expected in January due to a slowdown in volatile transportation orders. Core durable goods orders, on the other hand, increased more than expected.

Tuesday saw the release of the Conference Board Consumer Confidence Survey for February. Consumer confidence declined modestly during the month because of souring consumer expectations for the future. The increased consumer pessimism was largely due to expectations for fewer available jobs and lower income ahead.

The week wrapped with the releases of the ISM Manufacturing and ISM Services reports for February. Manufacturer confidence improved modestly in February; however, the index still sits in contractionary territory. Service sector confidence fell modestly, but the index still sits in healthy expansionary territory following a larger-than-expected increase in January.

WHAT TO LOOK FORWARD TO

This week will be lighter on the data front with two key reports set to be released.

Wednesday will see another sentiment report in the release of the international trade report for January. The monthly trade deficit is expected to increase modestly in January for the second consecutive month.

Finally, the week will wrap on Friday with the employment report for February on Friday. Economists expect to see a strong 200,000 jobs added in February, following a larger-than-expected increase in January.

Equity IndexWeek-to-DateMonth-to-DateYear-to-Date12-Month
S&P 5001.96%1.93%5.69%-4.95%
Nasdaq Composite2.61%2.06%11.87%-11.42%
DJIA1.85%2.31%1.15%1.47%
MSCI EAFE1.81%0.88%6.77%4.58%
MSCI Emerging Markets1.68%2.50%3.43%-11.18%
Russell 20002.05%1.67%9.70%-2.22%
Source: Bloomberg
Fixed Income IndexMonth-to-DateYear-to-Date12-Month
U.S. Broad Market-0.13%0.28%-9.98%
U.S. Treasury-0.16%-0.06%-10.54%
U.S. Mortgages-0.38%0.19%-9.61%
Municipal Bond-0.18%0.36%-5.06%
Source: Bloomberg

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2023 Commonwealth Financial Network®