Hello, this is Tom Jalics, Chief Investment Strategist at Fifth Third Bank
Major US equity indices finished mostly lower over the holiday-shortened week, with a Friday bounce in the S&P 500 not enough to erase earlier weakness. For the week, the Dow Jones Industrial Average fell 2.7%, the S&P 500 declined by 0.7%, and the Nasdaq Composite ended the week 0.6% lower. U.S. Treasuries were largely unchanged for the week, but the U.S. Treasury yield curve remained deeply inverted, with the 10-year note ending the week at 3.48%, while the two-year note yielded 4.17% at week’s end. The U.S. dollar was modestly weaker for the week finishing down 0.2% versus a basket of global currencies. Gold finished slightly higher, gaining 0.3%, ending trading on Friday at $1,927 per ounce. Oil settled higher as well, with West Texas Intermediate (WTI) crude ending the week up 2.0% to $81.31 per barrel with the market narrative still focused on the demand prospects from China's normalization.
As the week opened, the Fed's soft-landing thesis founded on softer inflation data, but a still robust labor market, was gaining credence with investors. But there remained persistent worries the market's strength thus far in 2023 was yet another bear-market rally. Growth concerns returned last week after some disappointing economic data which included a lackluster New York Fed Empire manufacturing index and a weak December retail-sales report. Additionally, fourth quarter earnings season has so far undershot expectations, helping to stoke fears that analyst estimates may have farther to fall.
Fourth-quarter earnings have been coming in weaker than forecast. Fourth quarter earnings season began in earnest last week, with twenty-six S&P 500 constituents reporting. According to FactSet's latest Earnings Insight report, with 11.0% of the index having reported, the blended earnings decline for the quarter is 4.6%, lower than the 3.2% decline expected as of year-end 2022. The blended revenue growth rate of 3.7% is also below the 3.9% expected at the end of the quarter. Lower earnings and revenue estimates and guidance remain a major concern for risk assets as we enter 2023.
This week will be very busy on the earnings front, with ninety-three S&P 500 constituents reporting. We can expect earnings from Microsoft, Johnson & Johnson, Tesla, AT&T, Verizon, Boeing, IBM, Visa, and Mastercard, among others. On Tuesday, S&P Global will release its Composite PMI for January, gauging business activity across the U.S. On Thursday, the Bureau of Economic Analysis (BEA) will issue the advance estimate for fourth-quarter gross domestic product (GDP), followed by its Personal Consumption Expenditures (PCE) Price Index for December on Friday. The latest updates on the housing market will include new and pending home sales for December.
As always, we will be watching and reporting to you next week. Thank you.
