Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
US equities were mostly higher last week, with most major indices continuing to rally off their 2022 lows. The S&P 500 is now up 16 percent since October 12th and the Nasdaq is up 18 percent since just December 28th. Treasuries were mostly weaker, as the yield on the 10-year Treasury finished the week at 3.53 percent. The dollar was stronger. Gold was down 2.4 percent, its largest weekly loss since October and following six consecutive weekly gains. Oil was lower as well, with WTI falling 8 percent for the week amid some persistent concerns about China demand.
In their first meeting of 2023, The FOMC raised rates by 25bp to 4.50-4.75 percent, as had been widely expected. The biggest surprise was Chair Powell's more-dovish tone in the follow-up press conference, stating that a soft landing remains his base case. The meeting seemed to cement market expectations for rates to top out at 5 percent at the next meeting in March, and the market staged a rally in its wake.
The biggest release of the week was the January nonfarm payrolls report that came out on Friday. 517K jobs were added last month, though the market was expecting a much lower number around 190K. The unemployment rate unexpectedly dropped to 3.4 percent, hitting the lowest mark since 1969. The magnitude of the payroll increase seemed to take the market by surprise, though many investors blamed seasonal adjustment factors. That said, the report did provide evidence for a labor market that has remained resilient despite the Fed's hiking campaign, which may be supportive of a soft-landing. At the same time, the report heightened market expectations for the Fed to raise rates above 5 percent before pausing, though hopes for rate cuts in the second half of 2023 remain.
The economic calendar will be fairly light this week. Given last week's surprisingly robust January payrolls report, there will likely be a lot of attention on Fedspeak as it resumes this week. Fed Chair Powell himself will be in the spotlight for comments on Tuesday before the Economic Club of New York. There are also scheduled appearances from other prominent Fed officials throughout the week. Regarding economic data releases, the only interesting reports will be jobless claims on Thursday and the University of Michigan February consumer sentiment reading on Friday. The Q4 earnings season continues rolling forward this week, with 95 S&P constituents scheduled to report in a slight downtick from last week's pace.
As always, we will be watching and reporting back to you next week. Thank you.