Market Pulse

Market Pulse

February 21, 2023

Market views heading into the week highlight what we're watching and important news ahead.

In focus

After mixed trading, the S&P 500 ended last week down, recording the first back-to-back weekly loss for the index so far this year. Bonds were down as well, causing the yield curve to flatten. The tug-of-war between data showing the health of the economy and data demonstrating the persistence of inflation was won by the latter last week

Equity markets started the week hopeful that January Consumer Price Index (CPI) data would support a disinflation narrative but were disappointed by numbers that showed a slower rate of cooling than in December. While the CPI data was in line with expectations and yearly CPI continued to decline, increases in energy, food, and shelter supported the Federal Reserve’s (Fed) motto of higher for longer.

By mid-week, there was another volley of data to prepare for. Retail sales grew by 3%, the largest increase in two years, demonstrating the health of the consumer and prompting the question, could demand once again fuel inflation? January’s Producer Price Index (PPI) outpaced expectations and took some wind out of both the disinflation narrative and the markets, which ended lower in the next two sessions.

This week, the Fed’s preferred inflation gauge, Personal Consumption Expenditures (PCE), will be in focus as investors try to better understand the path of inflation and the Fed’s plans to bring it down.

A look back

  • Global equity markets ended mixed last week with U.S. stocks trading slightly negative and international developed slightly positive. Emerging market equities lagged at -1.4%.
  • Yields ended the week generally higher with a notable jump in the 2-year U.S. Treasury yield, causing the 2-/10-year yield curve to invert to levels not seen in four decades.
  • January’s Producer Price Index came in above expectations at 0.7%, the biggest increase in goods prices since June 2022.

A look ahead

  • Less than 20% of the S&P 500 is left to report earnings, though this week we hear from several large household names like Home Depot (HD) and Walmart (WMT).
  • FOMC meeting minutes will be released Wednesday, providing investors with a more detailed view of the Fed’s mindset.
  • Economic releases: S&P Global U.S. Manufacturing & Services, New & Existing Home Sales, GDP revisions, PCE, and Univ. of Michigan Sentiment.

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