Weekly Market Update: Early 2023 optimism persists another week
The promising 2023 start for global equities continued this week. EU stocks moved back within 10% of all-time highs while the S&P climbed back above 4,000, testing its 200-day moving average. China’s reopening and improving inflation data were the underlying drivers. The December Manheim Used Vehicle Value Index registered the largest annualized decline in the series’ history, ahead of Thursday’s CPI data. The US dollar continued to retreat as markets became more comfortable with the expectation that the Fed will downshift to 25 basis point rate hikes. Oil and copper prices rose after the Chinese economy officially reopened and Beijing continued to talk up the need to support growth. Natural gas prices stayed volatile, but held at the lowest levels since the summer of 2021, resulting in analysts revising higher their outlook for European growth this year.
US CPI data showed inflation continued to slow in December. Shelter costs remained the major driver to the upside, while services continued to run hotter than the Fed wants to see. Nevertheless, headline inflation fell on a month over month basis for the first time since May 2020. The general trend in the economic data has led a growing number of FOMC members to express support for raising rates by only 25 basis points at the February 1st meeting, and Philadelphia Fed President Harker added to that tally following Thursday’s CPI print. Futures markets quickly solidified around expectations for a 25 bps hike next month. The US Dollar index held near a 7-month low, while gold prices approached fresh 6-month highs, breaking above $1,900. The Greenback lost more than 3% against the Yen amid a growing belief the BOJ will formally switch course by the time leadership changes hands at the end of Q1. The US 2-year yield fell below 4.2% and the 10-year retreated below 3.5%. For the week, the S&P gained 2.7%, the DJIA was up 2%, and the Nasdaq surged 4.8%.
Investors poured over a litany holiday sales updates signaling some caution around consumer discretionary spending. Swedish appliance giant Electrolux reported weak preliminary Q4 results, citing larger than expected inventory reduction activities. Bed Bath & Beyond reported another terrible quarter amid steady reports that the company is preparing for bankruptcy imminently. Retailer Abercrombie & Fitch bucked the trend, boosting its Q4 guidance based on better than expected holiday sales. JP Morgan and Bank of America reported strong quarterly results, while Citigroup lagged a bit behind its Wall Street rivals. Shares of Delta American Airlines soared, as Delta said momentum has continued in 2023 following strong Q4 results, while American raised guidance substantially ahead of its quarterly report. In another positive sign on the inflation front, Tesla dramatically slashed prices on its most popular vehicle models, reversing most of the price increases implemented over the last two years. Shares of Disney rose steadily throughout the week as it appointed former Nike CEO Mark Parker as its Chairman and addressed an activist push from Trian’s Nelson Peltz. The WWE remained the center of M&A speculation, with some reports suggesting a deal could be done by mid-year.