February 2023 Financial Market Update
It’s been a great start to 2023 as U.S. stock indices climb, and the old saying is as follows: As goes January, so goes the year[i]. That adage held up in 2022, with bears in control of U.S. equities starting last January, and we can hope that same logic holds up in 2023—only with the bulls in charge!
January set a much more optimistic tone for the U.S. equity and financial markets versus recent months, with more of a risk-on sentiment fueling rallies in major U.S. equity indexes. Market bulls are cheering lower inflation data in recent reports.
For the month of January, the S&P 500 added 6.18%[ii], the Nasdaq tacked on 10.7%[iii], and the Dow Jones Industrial Average rose by 2.83%[iv].
The December’s most recent Consumer Price Index (CPI) data showed a year-over-year rise of 6.5%[v], in line with analyst consensus. This was the smallest 12-month increase since October 2021.
Adding to the easing inflation picture, Core Personal Consumption Expenditures (PCE) eased in December, too, showing a 4.4% annual rise for December. This was also[vi] the smallest 12-month increase since October 2021. Keep in mind that PCE is the Federal Reserve’s preferred inflation gauge.
U.S. equities loved the softening inflation data, but inflation remains an issue. We see it every time we go to the supermarket, as food prices remain 11.8% higher[vii] year-over-year.
February Fed Meeting: “Ongoing” Rate Hikes
As expected, the Federal Reserve called for a 25-basis-point rate hike at its February 1st meeting, with the federal funds rate now at a target range of 4.5%-4.75%[viii]. This is the highest it has been since October 2007.
However, Federal Reserve Chair Jerome Powell stated that the Fed expects “ongoing”[ix] increases to the key overnight lending rate. U.S. stock indices didn’t seem to mind, though: the S&P 500 finished in the green for the day on February 1st.
December non-farm payrolls data showed a strong labor market, with 223,000 jobs created[x] versus expectations of 200,000. The unemployment rate also ticked lower, falling to 3.5%.
December’s gain of 223,000 jobs was down from the 263,000 gain in November. While these numbers might have pleased the Fed—indicating its rate hikes have begun to cool the economy—January’s data is unlikely to do the same.
January non-farm payrolls data released in early February showed the labor market blowing expectations out of the water, with 517,000 jobs[xi] added versus 188,000 expected.
January featured Q4 earnings season getting underway. Corporate earnings results have been rather dismal to this point, with 29% of S&P 500 companies having reported earnings as of the end of January.
69% of reporting companies have actual earnings per share (EPS) above estimates to date, according to data[xii] from Factset.
Consumer spending weakened towards the end of last year, with data showing a 0.2% decline[xiii] in December and a November data revision indicating further weakness.
Retail sales for December also showed weakness, falling by 1.1%[xiv]—slightly more than economic forecasts of 1.0%. Gasoline and department store sales showed particular softness in the report.
The soft consumer only makes logical sense, with inflation persisting for an extended period and the cost of necessities like food and shelter remaining elevated.
Government Bond Yields
Government bond yields fell in January amid expectations for a more dovish Fed going forward and renewed risk-on sentiment.
The 10-year US Treasury Note yield declined[xv] in January, with recent declines in CPI and Producer Price Index (PPI) noted as catalysts.
Recession? Fourth quarter GDP grew at a 2.9% year-over-year rate, higher than most expectations. The rise in quarterly GDP marked the second consecutive quarter of positive expansion, dwarfing the broader expectations of an impending recession.
Looking at the entire year of 2022, GDP rose 2.1%[xvi], which may seem counterintuitive given higher interest rates and inflation. The data shows the growth, however. Americans have been resilient!
Putting January Together
January showed us constructive economic data on several fronts and featured a different and improved sentiment versus the better part of the last year. The Nasdaq had its best January since 2001[xvii], a welcome way to start 2023.
February is a short month but don’t let that stop you from reaching out. Emerald Advisors is always happy to offer insights and guidance.
Disclosure: Emerald Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
[i] TEBI. (2022, January 26). Evidenceinvestor.com. As Goes January, So Goes The Year? [Online] Available at: As goes January, so goes the year? | TEBI (evidenceinvestor.com)
[ii] (2023, February 6). Marketscreener.com. S&P 500 (SP500). [Online] Available at: S&P 500 Rises 6.18% This Month to 4076.60 — Data Talk | MarketScreener
[iii] Clark, A. & Dattilo, E. (2023, January 31). Barrons.com. Nasdaq Has Best January in Over 20 Years. [Online] Available at: Nasdaq Has Best January in Over 20 Years (barrons.com)
[iv] Dow Jones. (2023, January 31). Morningstar.com. DJIA Rises 2.83% This Month to 34086.04 – Data Talk. [Online] Available at: DJIA Rises 2.83% This Month to 34086.04 — Data Talk | Morningstar
[v] Iacurci, G. (2023, January 12). Cnbc.com. Here’s the inflation breakdown for December 2022 – in one chart. [Online] Available at: Here’s the inflation breakdown for December 2022 — in one chart (cnbc.com)
[vi] Iacurci, G. (2023, January 12). Cnbc.com. Here’s the inflation breakdown for December 2022 – in one chart. [Online] Available at: Here’s the inflation breakdown for December 2022 — in one chart (cnbc.com)
[vii] Burga, S. & Popli, N. (2023, January 28). Time.com. Here’s Why So Many Grocery Store Staples Are So Expensive Right Now. [Online] Available at: Here’s Why Grocery Store Prices Are So High Right Now | Time
[viii] Imbert, F. (2023, February 1). Cnbc.com. The Federal Reserve raised rates. Chair Powell says it’s ‘premature’ to declare victory against inflation. [Online] Available at: Live Updates: Fed rate hike in February 2023 (cnbc.com)
[ix] Cox, J. (2023, February 1). Cnbc.com. Fed raises rates a quarter point, expects ‘ongoing’ increases. [Online] Available at: Fed rate decision February 2023: Quarter point hike (cnbc.com)
[x] Cox, J. (2023, January 6). Cnbc.com. Nonfarm payrolls rose 223,000 in December, as strong jobs market tops expectations. [Online] Available at: Jobs report December 2022: Nonfarm payrolls rose 223,000 in December, as strong jobs market tops expectations (cnbc.com)
[xi] Semenova, A. (2023, February 3). Finance.yahoo.com. Jobs report: U.S. economy adds 517,000 jobs in January, unemployment rate falls to 3.4% as labor market stuns. [Online] Available at: January jobs report: Payrolls surge by 517,000, unemployment rate falls to 3.4% (yahoo.com)
[xii] Butters, J. (2023, January 27). Insight.factset.com. S&P 500 Earnings Season Update: January 27, 2023. [Online] Available at: S&P 500 Earnings Season Update: January 27, 2023 (factset.com)
[xiii] Mutikani, L. (2023, January 27). Nasdaq.com. U.S. consumer spending falls; inflation cooling. [Online] Available at: U.S. consumer spending falls; inflation cooling | Nasdaq
[xiv] (2023, January 18). Census.gov. Advance Monthly Sales for Retail and Food Services, December 2022. [Online] Available at: marts_current.pdf (census.gov)
[xv] Mountford, J. (2023, January 25). Forbes.com. 10-Year Treasure Yield Drops In Response To Falling Prices. [Online] Available at: 10-Year Treasury Yield Drops In Response To Falling Prices (forbes.com)
[xvi] Burns, T. (2023, January 26). Thehill.com. Resilient US economy grows 2.1 percent in 2022. [Online] Available at: Resilient US economy grows 2.1 percent in 2022 | The Hill
[xvii] Clark, A. & Dattilo, E. (2023, January 31). Barrons.com. Nasdaq Has Best January in Over 20 Years. [Online] Available at: Nasdaq Has Best January in Over 20 Years (barrons.com)