Weekly Market Commentary February 20th to February 24th 2023

After elevated Consumer Price Index (CPI) and Producer Price Index (PPI) readings earlier this month, a higher-than-expected Personal Consumption Expenditures (PCE) figure confirmed inflation reignited in January. Core PCE increased 0.6% on the month and 4.7% from a year ago, modestly higher than expectations. The underlying components saw goods and services increase 0.6% while energy prices surged 2% during the month. Fed Governors have recently stated that some progress on inflation has been made, but the overall level of inflation is much too high. The market now anticipates at least three more rate hikes before a Fed pause.

Economists saw a dichotomy of data in the housing market. New Home Sales easily passed consensus estimates while Existing Home Sales reached the lowest level since October 2010. During January, 670k new homes were put under contract, more than the 620k estimate. This represented a 7% increase from the prior month and a 10-month high as prices modestly declined. New Home Sales are counted at the singing of a contract and are considered a leading housing market indicator. However, Existing Home Sales showed a much more stagnant housing market as transactions fell -0.7%, lower than the 2.0% expected. This marks the 12th straight monthly decline in sales, the longest stretch since 1999.

The second reading of Gross Domestic Product (GDP) was revised lower to 2.7% as consumers spent less than economists originally estimated. Personal Consumption fell to 1.4% from 2.1% and contributed to most of the revision. Gross private investment, fixed investment and nonresidential investment were all revised modestly higher.

Markets logged their worst week of the year as yields surged and fears of inflation reignited. All three indices finished lower with the Dow Jones down 2.99%, finishing the week at 32,817, S&P 500 closed at 3,970, down 2.67% while the Nasdaq saw the biggest declines, down 3.35%, finishing at 11,395. Treasury yields surged during the holiday shortened week. The 2-year increased to 4.81% from 4.62% while the longer dated 10-year note increased 0.13% to 3.95%.

Economic releases next week include ISM Manufacturing and Services, and additional housing data.