Hello, this is Tom Jalics, Chief Investment Strategist at Fifth Third Bank
Major US equity indices were lower this week as the S&P 500 fell for the first time in three weeks and Nasdaq Composite in six weeks. The S&P and Nasdaq also both posted their worst weekly performances since mid-December. For the week, the Dow Jones Industrial Average fell 0.1%, the S&P 500 declined by 1.1%, and the Nasdaq Composite ended the week 2.4% lower. U.S. Treasuries yields moved sharply higher this week with the 10-year U.S. Treasury up twenty-two basis points to end the week at 3.74% and the 2-year U.S. Treasury note up twenty-three basis points to the end week at 4.52%. The U.S. Treasury yield curve remained deeply inverted, posting its most inverted reading since the early 1980s. The U.S. dollar index was up 0.6% versus a basket of global currencies, with the biggest gains against the euro. Gold was down 0.2% for the week ending the week at $1,864.38/ounce. West Texas Intermediate (WTI) crude oil was up 8.6% for the week, reversing last week's 7.9% decline and had the best week since early October. WTI ended the week at $79.81/barrel.
Fed speak was an important driver in the financial markets last week. Fed chair Powell, in his appearance at the Economic Club of Washington, repeated his post-FOMC press conference remarks. Powell again said that disinflation has begun but has a long way to go, and more rate increases are likely needed. He also noted that the labor market is at least at maximum employment, while he thinks it will be into next year before inflation is down close to 2.0%. Powell also said the Fed isn't looking at changes to the 2.0% inflation target. Powell noted that while goods inflation as well as housing related inflation appear to be easing, services inflation, which is at least partially driven by higher wages, continues to remain elevated. Investors have taken stock in Powell’s "higher-for-longer" messaging, as Fed Funds futures contracts now expect a terminal Fed Funds rate of slightly higher than 5.0% to take hold in June of 2023 and stay there until late in the fourth quarter of 2023.
This week brings a much busier slate of economic data. Inflation will be on investor’s minds with the January CPI report coming out on Tuesday. January CPI is expected to show a headline acceleration to 0.5% month over month after December's 0.1% increase. The annualized increase is expected to drop to 6.2%, down from 6.5% in December. The report will be particularly meaningful given the growing doubts about a smooth disinflationary path. Tuesday will also be notable as the U.S. Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing on cryptocurrencies and digital assets, amid calls to regulate the industry. On Wednesday, January retail sales will be reported and is expected to rebound to a 0.7% month over month increase following December's 1.1% contraction. Several regional manufacturing indexes are also set for release, including the Empire State index on Wednesday and the Philly Fed index on Thursday. More updates on the housing market will arrive with January building permits and housing starts which are due Thursday. And finally, S&P 500 earnings season continues with reports from The Coca-Cola Company, Airbnb, DoorDash, Marriott International, Cisco Systems, and Paramount Global, and many others.
As always, we will be watching and reporting to you next week. Thank you.