February 17, 2023

Weekly Market Commentary February 13th to February 17th 2023

A busy and important week of economic data releases began on Monday with the critical Consumer Price Index (CPI) coming in slightly lower than last month (a good thing) but higher than expected (not so good). The year-over-year CPI hit 6.4% in January when consensus was calling for 6.2%. Lowering inflation certainly isn’t going to happen overnight but what’s important is maintaining the downward trend.

Retail Sales for January was next to be reported and the actual results (+3.0%) blew away estimates (+1.9%) as well as the past two negative months. Consumers are taking on more debt as lower-than-expected energy prices and evaporating supply chain issues are making buying fashionable again.

Wednesday also brought us disappointing industrial numbers with Production flat for the month when experts called for a +0.5% increase; and Capacity Utilization falling for the fourth consecutive month to 78.3%. In both instances, the Fed’s aggressive rate tightening can be blamed for the slowdown in manufacturing. Ideally speaking, a “soft landing” will come with a certain degree of pain, so this is to be expected.

On Thursday, Building Permits for January were reported higher by 0.7% while Housing Starts fell 5.3%. Winter housing numbers can be erratic due to weather but the trend has definitely been downward since summer, mainly due to high mortgage rates. Weekly Initial Jobless Claims once again came in lower than expected at 194k compared to 200k consensus. As mentioned many times in this space, this is a very important indicator of oncoming lay-offs, which the Fed has suggested might be necessary to slow inflation.

Lastly, Producer Prices (PPI) for January surprised to the upside, and while year-over-year price increases fell to 6%, the experts were anticipating 5.4%. As with the CPI earlier, the downward trend is the most important factor here as price increases are slowing.

The equity markets were mixed on the week with the S&P 500 declining 0.3% to 4,079; the Dow Jones Industrials also falling 0.3% to 33,827; and the Nasdaq gaining 0.6% to finish at 11,787. U.S. Treasury yields were up across the board this week with the 2-year finishing at 4.62%, the 10-year at 3.81%, and the 30-year at 3.87%.

Next week brings the S&P Services and Manufacturing PMIs, a possible revision of Q4 GDP, Consumer Spending and Personal Income, PCE inflation data, and New Home Sales.

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