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The Long and Short of it, week ending 06 January 2023

Posted: 10 January, 2023

Topic: Telecoms , Financials , Basic Materials , Energy , Industrials , Technology

Publication Type: Market Commentaries

Stock prices trended lower through Thursday with concerns of continued aggressive Fed monetary policy for the most part controlling investor and market sentiment. Lower-than-expected initial jobless claims and a strong ADP release overrode weak Manufacturing PMI and ISM Mfg Index releases (following the “good news is bad news” paradigm), pressuring all three major stock market indexes lower through Thursday. That all changed, however, following Friday’s job report which showed significantly reduced wage pressures and after a weaker-than-expected ISM Services Index release. While the jobs report showed the number of jobs added declined from the previous month (and that the previous month’s increase was revised lower), it was the slowdown in hourly wages that caught the market’s attention. That slowdown, along with the weak ISM Services Index number, increased investor expectations of a less-aggressive Fed spurring a sharp stock market rally. In concert with those expectations, the 10-year U.S. Treasury rate, lower 15bps through Thursday, fell another 17bps Friday. At week’s end, the S&P 500 Index rose 1.4% to 3,895.08, the Nasdaq Composite Index increased 1.0% to 10,569.29, the Dow Jones Industrial Average gained 1.5% to close at 33,629.79, the 10-year U.S. Treasury rate fell 32bps to 3.56% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 0.4%.

European markets noticeably outperformed U.S. stock markets last week with STOXX 600 leading the charge. Falling inflation in Germany and France and better-than-expected euro zone business activity boosted stock prices in both the U.K and the euro zone through Thursday, though the STOXX 600 gave up some gains Thursday in reaction to lower-than-expected U.S. jobless claims and hawkish FOMC minutes (released late afternoon U.S time Wednesday). Friday saw both the STOXX 600 and the FTSE 100 Indexes move higher following the U.S. jobs report which showed weakening wage growth and a decrease in jobs created versus the previous month. The 10-year Gilt and Bund rates mirrored U.S. rate performance, falling markedly over the week. For the week, the FTSE 100 Index increased 3.3% to 7,699.49, the STOXX 600 index rose 4.6% to 444.42, the 10-year UK government rate decreased 17bps to 3.50%, the 10-year Bund rate dropped 35bps to 2.21% and the British pound and euro weakened 0.1% and 0.5%, respectively, both versus the U.S. dollar.