ClearWater Market Commentary as of February 3rd, 2023

Here is the ClearWater Market Commentary as of February 3^rd, 2023:

In this issue:
– Performance of Major Indices
– Market Commentary
– Last Week’s Key Economic  Events and Upcoming Events

Performance of Principle Indexes: 

S&P/TSX Composite Index
5 Day	0.05%
1 Month	4.76%
YTD	7.08%
1 Year	-2.41%

^{As of 2023/02/03 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Russell 2000	5.29%	12.73%
Nasdaq	3.30%	14.70%
DAX	2.15%	10.92%
CAC 40	1.92%	11.51%
S&P 500	1.84%	6.81%
MSCI EAFE	1.20%	8.50%
Nikkei	0.15%	4.44%
S&P/TSX Composite	0.05%	7.05%
Dow Jones Industrial	-0.20%	2.30%
FTSE 100	-0.39%	4.63%
Shanghai Composite	-0.98%	4.79%
Hang Seng Index	-4.14%	7.80%
WTI Crude (Oil)	-8.10%	-8.80%

^{As of 2023/02/03- Source: www.marketwatch.com}

Last week’s and next week’s key economic events:

US economy (S&P 500 1.84%):

• Most of the major indexes extended their winning streaks into February, helped by some upside surprises in economic data and fourth-quarter earnings reports, as well as what some saw as encouraging signals from the Federal Reserve. The S&P 500 Index reached an intraday high of 4,195 on Thursday, its best level since late August.
• A 23% jump on Thursday in Facebook’s parent company, Meta Platforms—the stock’s biggest daily gain in almost a decade—provided a major boost to the technology-heavy Nasdaq Composite Index and other mega-cap technology and internet-related growth stocks. The social media giant beat revenue expectations for the fourth quarter, and CEO Mark Zuckerberg delivered an upbeat outlook for the year ahead. Some of the enthusiasm drained on Friday, however, following disappointing results and outlooks from Apple, Google’s parent company Alphabet, and Amazon.com.
• On Thursday, the S&P 500 marked its first “golden cross” in two-and-a-half years, as the index’s 50-day moving average drifted slightly above its 200-day average. The metric is used by technical analysts as an indicator that an upward trend in the markets is gaining momentum. Heavy “short covering,” or the buying of stocks by hedge funds and others to cover their bets that the stock’s price will fall, also appeared to be at work.
• The busiest week of quarterly earnings reports—companies representing roughly a third of the S&P 500’s market capitalization released results—coincided with a string of closely watched economic reports, resulting in multiple crosswinds for investors to consider. 
• On Wednesday, the Fed raised official short-term interest rates by another quarter point, as was widely expected, and Fed Chair Jerome Powell acknowledged at his post-meeting press conference that the ECI was “abating a little bit.” Powell also noted, however, that the ECI and average hourly earnings gains remained “fairly elevated” and that “the disinflationary process” was “at an early stage” and focused on goods prices because of healing supply chains. Nevertheless, the major indexes jumped as investors seemed to interpret the overall tone of his remarks as more dovish than expected.
• Friday’s economic data brought major surprises that caused investors to reconsider their rate expectations. The Labor Department reported that employers added 517,000 non-farm jobs in January, roughly triple consensus estimates and the biggest gain in six months. The unemployment rate slipped to 3.4%, its lowest level since 1969. (Weekly jobless claims, reported Thursday, fell to their lowest level in nine months.) Investors seemed to take the news mostly in stride, as the tight labor market did not seem to be flowing proportionately into wage gains. 
• Friday’s other surprise was January’s jump in services sector activity. The Institute for Supply Management reported that its index of non-manufacturing activity jumped to 55.2 from 49.2 in December, reversing nearly all its steep drop in December and moving it well back into expansion territory (the 50 level separates contraction from expansion).

Canadian markets (S&P/TSX 0.05%):

• Canada’s main stock index managed a slight gain on a day that saw markets swing notably following the release of better-than-expected jobs data in the U.S., which left markets in the U.S. down by day’s end as investors plan for more rate hikes ahead.
• Sectors including energy, financials, and telecoms were up, while utilities, health care and base metals saw drops.
• The still-strong U.S. economy means more rate hikes there at a time when the Bank of Canada has signaled a probable pause on raising rates, putting pressure on the loonie.
• The Canadian dollar traded for 74.68 cents US compared with 75.12 cents US on Thursday.
• The March crude oil contract closed down US$2.49 per barrel at US$73.39 and the March natural gas contract was down five cents at US$2.41 per mmBTU.

Performance 2023: S&P 500 Sectors   

Forward P/E Ratios: S&P 400/500/600 Sectors

European and Asian economies:

• Shares in Europe rose on hopes that central banks may be nearing the end of the most restrictive phase of this monetary tightening cycle. 
• The UK’s FTSE 100 Index climbed partly bolstered by the depreciation of the pound against the U.S. dollar after the Bank of England (BoE) suggested interest rates might peak at a lower level than expected by the market.
• The ECB raised its key interest rates by half a percentage point, taking the deposit rate to 2.5%. The central bank expects to raise rates by the same amount in March due to underlying inflation pressures. The ECB added that it “will then evaluate the subsequent path of its monetary policy,” with “future decisions continuing to be data-dependent and following a meeting-by-meeting approach.”
• The latest data showed the headline rate of inflation in the eurozone cooled more than expected in January to an annual rate of 8.5%, from 9.2% the previous month. But core inflation—excluding changes in food and energy prices—remained at an all-time high of 5.2%. The eurozone economy unexpectedly grew 0.1% in the last three months of 2022.
• The BoE’s nine policymakers voted 7-2 to raise the key interest rate by half a percentage point to 4%, in line with expectations. The bank said headline inflation has begun to edge back and projected that this metric would fall sharply over the course of the year, reaching 3% in the first quarter of 2024. But the BoE warned that “if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.” It also said that “the risks to inflation are skewed significantly to the upside.”
• The BoE also said a UK recession was likely to be “much shallower” than forecast in November, largely due to a drop in energy prices. Meanwhile, the International Monetary Fund (IMF) projected that the UK economy would contract 0.5% this year.
• Japan’s stock markets registered mixed performance for the week. Sentiment was boosted by expectations that the U.S. Federal Reserve’s monetary policy tightening cycle may be nearing its peak. The Bank of Japan (BoJ) reiterated its commitment to ultra-loose monetary policy.
• BoJ Deputy Governor Masazumi Wakatabe said during the week that the outcome of annual “shunto” wage negotiations (expected mid-March) between companies and unions and any changes to the inflation outlook would come under close scrutiny. He noted that an increasing number of companies were becoming keener to lift wages. BoJ Governor Haruhiko Kuroda also expects quite significant wage rises, as the economy improves and labor market conditions tighten.
• Rengo, an umbrella organization for labor unions, has set a 5% wage hike as the target for the regular workers of the primarily large companies it represents. The pace of wage revisions announced by Japanese corporations has already accelerated markedly since late last year.
• On the economic data front, Japan’s industrial production fell 0.1% month on month in December, a smaller-than-expected decline, while annualized retail sales growth of 3.8% beat expectations on a continued post-pandemic recovery in consumption. Consumer confidence improved in January, while the unemployment rate was unchanged. Although the final services Purchasing Managers’ Index was revised slightly lower, the survey showed that services sector activity expanded at a fast pace in January, boosted by the government’s travel subsidy program.
• Chinese equities fell in the first full week of trading after the weeklong Lunar New Year holiday as investors pocketed gains from a recent rally and turned cautious about the strength of the country’s recovery. 
• In economic news, China’s official manufacturing Purchasing Managers’ Index (PMI) rose to 50.1 in January from December’s 47.0. This marked a return to growth for the first time since September as domestic activity improved after Beijing abandoned its coronavirus restrictions at year-end. 
• Separately, the private Caixin/S&P Global survey of manufacturing activity in January remained below 50, the level separating growth from contraction, as output prices and new orders declined and exports retreated amid softening global demand. However, the Caixin/S&P Global survey of services activity rose to a better-than-expected 52.9 reading compared with 48.0 in December.
• Meanwhile, the IMF raised its annual growth forecast for China as the economy rebounds following the removal of pandemic curbs. The IMF projected that China’s economy would grow 5.2% this year, up from its October forecast of 4.4%, and kept its estimate for 2024 at 4.5%.
• New home sales in China fell by 48.6% in January as weak demand weighed on buying activity, reported state-run media. The drop in sales comes even as many cities across the country have reportedly reduced mortgage rates for first-time homebuyers in advance of an expected rate cut by the central bank. In January, the People’s Bank of China announced that first-time buyers would be offered lower mortgage rates if new home prices fell for three consecutive months.

What to watch this week:

• Canadian employment and trade data
• US President Biden’s State of the Union Address
• Chinese inflation, M2 money supply and aggregate yuan financing data
• Eurozone retail sales
• UK GDP, industrial production and trade data
• Australia, India, Mexico and monetary policy announcements
• 95 S&P 500 and 33 S&P/TSX companies report earnings
  

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Sources: Bloomberg.com,Yardeni.com, Barron’s.com, Factset.com and Newyorkfed.org

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