February 3, 2023

Weekly Market Commentary January 30th to February 3rd 2023

The week led off with regional manufacturing data indexes, with the Dallas Fed activity index registering a decline of -8.4 which was ahead of the survey (-15.0) and prior month (-20.0) but remained in contractionary territory. The Chicago PMI reported a similarly weak report declining by -0.8 to 44.3 and the fifth consecutive monthly reading below 50, which signals contraction.

The middle of the week brought additional national manufacturing data with the S&P U.S. PMI registering a 46.9, slightly above the prior month’s reading of 46.8, but below 50 and still in contractionary territory. Last to report was the Institute of Supply Management, which registered a 47.4, the lowest reading since May 2020.

The MBA mortgage application index fell 9.0% for the week after increasing 7.0% in the prior week. Mortgage rates declined for the fourth straight week with the average 30-year fixed rate sitting at 6.19%.

The FOMC Rate decision was Wednesday and as expected increased the Fed Funds Rate by 25bps to 4.50% – 4.75%. Overall, prior language that “ongoing increases” are appropriate, while noting that inflation “has eased somewhat but remains elevated” is a slight shift and suggests more confidence that inflation pressures have peaked.

The payroll report for January far exceeded expectations and confirms a still strong labor market. Nonfarm Payrolls increased 517k, beating the 188k estimate. Average hourly earnings rose 0.3% month-over-month and 4.4% year-over-year. The report, in particular the moderation of wage growth, was an additional sign that inflation is continuing its downward trend.

The ISM Services index surprised to the upside increasing 6 percentage points to 55.2, up from 49.2 in December and back firmly in expansionary territory.

The S&P 500 opened the week in the red on Monday, after a strong positive finish in the prior week. However, better than expected earnings and encouraging inflation data on Tuesday created positive momentum through Thursday. Friday gave some of the gains back, but closed the week at 4,136 and up 1.62% for the week.

Treasury yields opened the week at 3.53% and closed almost unchanged at 3.54%. The spread between the 2-year Treasury and 10-year Treasury remains inverted, opening the week at -70bps and closing at -75bps.

Next week’s economic reports include, Consumer Credit, Initial Jobless Claims, and several sentiment indexes.

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