Market Pulse

In focus

Equity markets moved higher last week with nine of the 11 S&P 500 sectors finishing in the green. Defensive sectors like health care and utilities fell behind as consumer discretionary, information technology, and communication services amassed impressive rallies. The 2.5% increase for the index builds on top of an already strong start to the year. Some of last year’s biggest losers have bounced back the hardest as fund outflows have eased and January tends to be a mean-reversion month.

In preparation for the Federal Open Market Committee (FOMC) meeting this Wednesday, the Federal Reserve (Fed) entered its quiet period last week. With no Fed-speak to analyze, the only new information that investors received were the recent economic data points. The preliminary 4Q Gross Domestic Product (GDP) and the Personal Consumption Expenditures (PCE) provided new information, but nothing that seemed to cause any outsized surprises. Accordingly, the market’s outlook for a smaller 0.25% rate increase remained intact.

Earnings have been another factor at play, though it seems expectations have been lowered. The average change in price for negative earnings surprises so far is +0.7%, compared to the 5-year average of -2.2%, according to FactSet. The week ahead is important with 21% of S&P 500 companies, including some mega-cap technology companies, reporting in addition to the FOMC and payrolls. 

A look back

• Global equity markets moved higher last week with broad strength across all regions. The S&P 500 was able to close the week out above its 200-day moving average. 
• Yields ended the week with only subtle changes and a small steepening of the 3-month/10-year U.S. Treasury curve.
• Preliminary 4Q22 real Gross Domestic Product (GDP) rose an annualized 2.9% from the prior quarter, exceeding expectations.  

A look ahead

• Earnings season kicks into high gear this week with 107 companies in the S&P 500 slated to report fourth quarter results.
• The Federal Reserve (Fed) will remain quiet leading up to Wednesday’s FOMC meeting and the Fed Funds rate decision.
• Economic releases: Fed Funds Rate, ISM & S&P Global U.S. Manufacturing & Services, Durable Goods Orders, Nonfarm Payrolls, and the Unemployment Rate.

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