Market Brief: February 2023

February 2, 2023

The Markets (as of market close January 31, 2023)

January proved to be a bumpy ride for investors, with stocks ultimately ending higher to begin the new year, despite concerns that the economy may be headed toward a significant slowdown or even a recession. Nevertheless, each of the benchmark indexes listed here posted solid gains in January, led by the Nasdaq as tech stocks rebounded from a rough 2022. Stocks began the month by climbing higher over the first two weeks of January. However, equities lagged mid-month, only to rebound at the end of January, closing out the month on a positive note.

Several market sectors posted solid gains in January. Consumer discretionary and communication services increased by about 14.0%. Real estate, materials, and information technology gained about 9.0%. On the other hand, health care, utilities, and consumer staples lost ground.

Recent economic data indicated that inflation may have peaked. The consumer price index and the personal consumption expenditures price index for December revealed a drop in the annual rate of price increases. However, the Federal Reserve and most central banks continued to stress further tightening. The Federal Open Market Committee hiked interest rates 25 basis points at its meeting on February 1. Wall Street remained hopeful that the economy can weather more interest-rate hikes. Fourth-quarter gross domestic product increased 2.9%, a slower pace of growth than in the third quarter. For 2022, GDP increased 2.1%. Several of the world's leading economic indicators slowed in the second half of 2022, curtailing momentum leading into 2023.

Manufacturing activity decelerated, with industrial production falling over the past several months. Durable goods orders rose in December, driven largely by a jump in transportation. Excluding transportation, durable goods orders decreased 0.1%. The purchasing managers' index declined as output levels fell amid weak customer demand. High interest rates and economic uncertainty led to reduced customer spending.

Fourth-quarter corporate earnings were generally favorable, however not as strong as the same period last year. Of the roughly 100 S&P companies that have reported Q4 results, total earnings are down about 6.0% compared to a year ago and are expected by be down 7.2% overall.

Bond prices rose in January, pulling yields lower. Ten-year Treasury yields fell 32 basis points. The Treasury yield curve is currently inverted, with the yield on the one-month bond at about 4.53%, while the 10-year bond yield sits at 3.52%. An inverted yield curve is often seen as an indicator of economic weakness. The dollar slid lower against a basket of world currencies. Gold prices rose nearly $114.00 per ounce in January, advancing for the second consecutive month.

Crude oil prices declined in January for the third straight month. Prices for U.S. and global crude oil notched their largest monthly decreases since November 2022. Oil prices were volatile in January, opening the month lower, but rising on optimism of China's increased demand. However, prices slipped lower toward the end of January as overall demand appeared to wane. The retail price of regular gasoline was $3.489 per gallon on January 30, $0.398 more than December's price, and $0.121 higher than a year ago.

Stock Market Indexes

Market/Index	2022 Close	Prior Month as of January 31	Monthly Change	YTD Change
DJIA	33,147.25	33,147.25	34,086.04	2.83%
Nasdaq	10,466.48	10,466.48	11,584.55	10.68%
S&P 500	3,839.50	3,839.50	4,076.60	6.18%
Russell 2000	1,761.25	1,761.25	1,931.94	9.69%
Global Dow	3,702.71	3,702.71	3,990.37	7.77%
Fed. Funds target rate	4.25%-4.50%	4.25%-4.50%	4.25%-4.50%	0 bps
10-year Treasuries	3.87%	3.87%	3.52%	-35 bps
US Dollar-DXY	103.48	103.48	102.08	-1.35%
Crude Oil-CL=F	$80.41	$80.41	$79.08	-1.65%
Gold-GC=F	$1,829.70	$1,829.70	$1,944.00	6.25%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Looking Ahead

Inflationary pressures showed regression in January, which could prompt the Federal Reserve to scale back interest-rate hikes beginning on the first of February, following the Committee's next meeting. As inflation waned, so did the economy. Close attention will be paid to the labor report and other inflation data, including the consumer price index and the personal consumption expenditures price index. The world economy will get a boost if China remains open to trade, despite growing COVID cases.

Data sources: Broadridge Investor Communication Solutions, Inc.

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