Mixed Economic Data
Stocks weakened to start the week amid discouraging corporate earnings and troubling economic data. Disappointing retail sales and manufacturing reports sparked concerns that the Fed may have gone too far in hiking rates, while a drop in initial jobless claims diminished chances of a near-term pause in rate hikes. Welcome news from two big technology names on Friday powered a strong rally that mixed significant indices.
The start of the earnings season was a drag on investor sentiment. While 69% of the S&P 500 constituent companies that reported earnings by Thursday (48 companies) exceeded expectations, the percentage of “beats” is below the three-year average. More concerning, however, was that average earnings declined by more than 2%.1
Growth oriented stocks were the week’s best performers with the NASDAQ providing the only positive return of the three major indexes.
Mid Cap stocks as represented by the Russell Mid Cap and small cap stocks as represented by the Russell 2000, were both negative on the week while underperforming larger cap peers as represented by the S&P 500.
International stocks outperformed domestic stocks, with the MSCI EAFE and MSCI EM returning 0.01% and 0.63%, respectively.
Bonds were also positive across the board, with domestic bonds outpacing international bonds. U.S. Bonds, represented by the Bloomberg U.S. Agg Bond Index, returned 0.15%, while international bonds, represented by the Bloomberg Global Aggregate Index, were flat.
Egg Smugglers: U.S. Border officials have seen a 108% spike in egg smuggling busts, as the price for a carton domestically remains stubbornly high. For context, the U.S. government's consumer price index shows that - nationally - the price of a dozen large eggs stood at $1.93 in January of 2022, compared to $4.25 by December.3
The Entrepreneurial Boom: the U.S. was actually experiencing a 40-year decline in entrepreneurship before the pandemic, per the NYT. But then things changed: The number of new businesses created in 2020 increased by 24% from 2019 to 4.3 million as laid-off workers found their savings accounts boosted by stimulus payments and a bull market. Also helpful: rock-bottom interest rates. The trend continued in 2021, ballooning to 5.4 million applications.4
Twitter Garage Sale: The social media company kicked off 2023 by listing 631 items from its San Francisco headquarters in a virtual auction that concluded yesterday afternoon. Some fun facts: The most expensive item was a bird statue that sold for $100,000. Over 20,000 people registered to bid, making this the most popular auction that Heritage Global—which also ran an Enron auction—has ever organized.5
Ukrainian soccer club pledges $25 million for soldiers: Rinat Akhmetov, Ukraine’s richest man and the owner of the Shakhtar Donetsk football club, announced the donation yesterday after agreeing to trade star player Mykhaylo Mudryk to Chelsea FC in a ~$110 million deal. The cash will go to soldiers and their families to cover a variety of needs, including medical treatment and psychological support.6
Reprinted with permission from BTN. Copyright © 2023 Michael A. Higley.
1 The Earnings Scout, January 19, 2023
Retail Sales: Retail sales (also referred to as retail trade) tracks the resale of new and used goods to the general public, for personal or household consumption. This concept is based on the value of goods sold.
Producer Prices: PPI (headline and core): Producer prices (output) are a measure of the change in the price of goods as they leave their place of production (i.e. prices received by domestic producers for their outputs either on the domestic or foreign market).
Housing Starts: Housing (or building) starts track the number of new housing units (or buildings) that have been started during the reference period.
Existing Home Sales: This concept tracks the sales of previously owned homes during the reference period. Total existing home sales include single-family homes, townhomes, condominiums and co-ops. All sales are based on closings from Multiple Listing Services. Foreclosed homes are only counted in the inventory if the bank is working with a realtor. Foreclosed homes that sell via auction (or other closings outside of the Multiple Listing Services) are not included.
National Retail Federation: The National Retail Federation (NRF) is the world's largest retail trade association Its members include department stores, specialty, discount, catalog, Internet, and independent retailers, chain restaurants, grocery stores, and multi-level marketing companies. Members also include businesses that provide goods and services to retailers. NRF represents the largest private-sector industry in the United States.
GDP: Gross Domestic Product (GDP) is widely accepted as the primary indicator of macroeconomic performance. The GDP, as an absolute value, shows the overall size of an economy, while changes in the GDP, often measured as real growth in GDP, show the overall health of the economy.
Federal Reserve (Fed): The Federal Reserve System is the central banking system of the United States of America.
Federal Funds Rates (Fed Funds rate): The Federal funds rate refers to the target interest rate set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.
S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.
Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.
MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.
MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
Bloomberg Barclays U.S. Agg Bond: The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg Barclays High Yield Corp: The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.
Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
Bloomberg Barclays Municipal Bond Index: The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.
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1/20 Market View Weekly: By the Numbers
January 26, 2023|