Weekly Market Report: February 23rd, 2023

A President’s Day holiday-shortened trading week with a relatively light economic calendar looked to the ‘AI tipping point’ narrative, encouraging earnings reports, and a continued healthy economic growth backdrop taking U.S. (and Japan!) equity markets to fresh record highs. The S&P 500 closed up 1.7% (6.7% ytd) with non-U.S. markets following suit in both developed +1.9% (2.7% ytd) and emerging +1.8% (1.0% ytd) markets. Bond yields were relatively flat with the 10yr falling 4bps to 4.26% while commodities (-1.4%) and the USD (-0.34%) were down slightly.

Market Anecdotes

  • Early week market consolidation gave way to an AI-related earnings jolt, pushing the S&P 500 up 2% and the NASDAQ up 3%, both to record highs – something we haven’t seen since March 2000.
  • A Bespoke look back at major technology releases in light of the AI momentum led to an analysis of eight ‘AI’ ETFs which contained 67 S&P 500 companies therein and several constructive performance illustrations going back to the ChatGPT release on 11/30/22.
  • Several Fed speaking engagements and FOMC and ECB meeting minutes released last week served to reinforce further hawkish repricing of rate cut expectations which have already fallen from seven rate cuts to approximately three for the year.
  • An article in Bloomberg highlighting an Attom report on the looming issues across commercial real estate showed January foreclosures up 17% MOM and twice as many as January 2023. Meanwhile residential mortgage rates have risen three consecutive weeks, now back to 7.3%.
  • The JPM CEO disclosed a significant ‘estate planning’ move last week in selling $150mm of JPM stock, which based on his prior uncanny timing, investors may be well served to take note.
  • The PBOC announced another surprise policy decision, delivering a record cut to a key mortgage reference lending rate. Markets again were largely unimpressed.
  • BCA’s FX Strategists have modeled the USD as the most overvalued currency across all developed and emerging currencies globally at +19.1%.

Economic Release Highlights

  • January YOY headline and core CPI registered (3.1% vs 3.0%) and (3.9% v 3.7%) respectively with MOM readings of (0.3% v 0.2%) and (0.4% v 0.3%).
  • January YOY headline and core PPI registered (0.9% v 0.7%) and (2.0% v 1.7%) respectively with MOM readings of (0.3% v 0.1%) and (0.5% v 0.1%).
  • Retails Sales in January fell well short of forecast (-0.8% v -0.1%). Ex-Vehicles (-0.6% v 0.2%) and Ex-Vehicles & Gas (-0.5% v 0.2%) also missed.
  • Industrial Production in January missed the spot forecast (-0.1% v 0.2%) as did Manufacturing Output (-0.5% v -0.1%) and Capacity Utilization (78.5% v 78.8%) also fell short.
  • January’s NFIB Small Business Optimism Index declined and came in below consensus forecast (89.9 v 92.4).
  • UofM Consumer Sentiment reading for January registered 79.6, in line with the consensus forecast of 80.0. One year inflation expectation increased from 2.9% to 3.0%.
  • The Housing Market Index for February came in above forecast (48 v 46).
  • Housing Starts (1.331M) and Permits (1.470M) in January both came in below the spot consensus and the forecast range.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
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