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The Long and Short of it, week ending 20 January 2023

Posted: 23 January, 2023

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

Publication Type: Market Commentaries

A mixed week for major stock market indexes with the Nasdaq Composite index strongly outperforming both the Dow Jones Industrial Average and the S&P 500 Index. Increased recession fears prompted by some prominent weaker-than-expected earnings report (e.g., Goldman Sachs, Travelers), extremely weak Chinese GDP growth, hawkish Fed officials’ comments, an unexpected drop in retail sales and a lower-than-expected PPI (interpreted as an indication of weak business activity) pushed all 3 major indexes more than 2% lower through Thursday. Google’s layoff announcement and Netflix’s surprise beat moved stock prices higher Friday perhaps assisted by investor “oversold” sentiment. The 10-year Treasury rate, belying its intraweek volatility (rates fell sharply Wednesday on the back of the retail sales and PPI releases), was almost unchanged with a less than 10bp decline in 10-year real rates offset almost entirely by a rise in 10-year inflation expectations. At week’s end, the S&P 500 Index finished 0.7 lower to close at 3,972.61 the Nasdaq Composite Index gained 0.6% to 11,140.43, the Dow Jones Industrial Average fell 2.7% to 33,375.49 the 10-year U.S. Treasury rate fell 2bps to 3.48% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 0.2%.

Both the STOXX 600 and FTSE 100 Indexes finished the week lower, breaking a string of weekly gains since the start of the new year. The FTSE 100 Index underperformed the STOXX 600 Index with rising wage and food and drink inflation levels, concerns over weak Chinese growth and a strengthening British pound (versus the U.S. dollar) pressuring the FTSE 100 Index lower. Up over 1% percent through Wednesday on hopes of less aggressive ECB tightening policies, expectations of increased Chinese demand and better-than-expected earnings reports, the STOXX 600 index fell over 1.5% Thursday on weak U.S economic data (e.g., retail sales and falling PPI) and on hawkish comments from ECB President Lagarde. The FTSE 100 Index, down about ¼ percent through Wednesday, fell 1% Thursday for mostly the same reasons. Both indexes moved slightly higherFriday on no real news. For the week, the FTSE 100 Index fell 0.9% to 7,770.59, the STOXX 600 Index decreased 0.1% to 452.12, the 10-year Gilt was unchanged at 3.37%, the 10-year Bund rate increased 3bps to 2.17% and the British pound and euro strengthened 1.4% and 0.2%, respectively, both against the U.S. dollar.