Opening week 2023

[Hectorplains]

Best opening week on European markets for more than a decade.  Stateside, the S&P was up almost 2 per cent too.

Europe: Energy costs down - Nat gas and petrol down 75% from their peaks. Eurozone inflation figures for December — back down to single digits. 

US: The rate of job growth was faster than expected, at 223 000 for December but with weaker growth in employee wages. The unemployment rate fell to an all-time low of 3.5%

Inflation remains the key concern and further interest rate rises seem inevitable to push it back down under 5%. 

Where does this leave sentiment going forward?  Financial Times say, "Markets now expect US interest rates to peak at just over 4.9 per cent in June, down from 5.1 per cent before the publication of December's jobs figures, with rates forecast to drop below 4.5 per cent at year-end, from a previous estimate of 4.7 per cent before the data were released."  I don't see this  as the bed for a solid run for stocks yet.  There are too many variables that could tilt things negatively (especially geo-political factors.)  I remain lightly invested and very cautious on US stocks.

[Basil]

S&P500 seems rangebound to me, likely stuck in the 3500-4200 zone for the foreseeable future.
The chances of a breakout to form a new low seem not inconsiderable on any major new geopolitical event or exogenous shock.  It would take a very clear pivot from the Fed or an end to the war, or both for a breakout to the upside in my opinion.

If I go fishing there later this year it will be in the value and or energy sector.  I think a lot of the tech sector has a long way further to fall.  Cathy Wood's ARK innovation fund set for more underperformance in 2023.

[Clearasmud]

S&P500 seems rangebound to me, likely stuck in the 3500-4200 zone for the foreseeable future.
The chances of a breakout to form a new low seem not inconsiderable on any major new geopolitical event or exogenous shock.  It would take a very clear pivot from the Fed or an end to the war, or both for a breakout to the upside in my opinion.

If I go fishing there later this year it will be in the value and or energy sector.  I think a lot of the tech sector has a long way further to fall.  Cathy Wood's ARK innovation fund set for more underperformance in 2023.

I'm not investing in oil anymore.
Too much disruption on the horizon.

[Hectorplains]

Big news stateside: Financial Times this morning report...

Annual US inflation fell in December to its lowest level in more than a year, in a further sign price pressures have peaked amid the Federal Reserve's historic campaign to tighten monetary policy.

The consumer price index, published by the Bureau of Labor Statistics on Thursday, declined for a sixth consecutive month, registering an annual increase of 6.5 per cent.

While still near a multi-decade high, this was the lowest level since October 2021 and represents a notable decline from the 9.1 per cent reached in June. Compared with the previous month, prices dropped 0.1 per cent.

The closely followed "core" measure, which strips out volatile food and energy prices and is regarded as the best indicator for inflation's trajectory, rose 0.3 per cent from the previous month, translating to a 5.7 per cent annual pace.

Fed officials are monitoring the latest inflation data closely as they decide how much more to squeeze the US economy .

This is very close to what analysts were picking:  a 0.1 per cent drop in headline inflation, representing an annual rate of 6.5 per cent.  Hopefully, that should underpin the US market...for now.

[mcdongle]

Services inflation at a 4 decade high... Not out of the woods yet i think.

[Hectorplains]

Services inflation at a 4 decade high... Not out of the woods yet i think.

I don't doubt that for the medium term but in the immediate: the Dow closed 100 points higher, and both the S&P 500 and Nasdaq had their best weeks since November. 

[Basil]

I think it was always a given with 2022 being the worst year on the market since the GFC we were going to see a lot of punters on the US markets engage in tax loss selling in December to offset capital gains tax.  That's run its course now and the market is now more stable and drifting up a bit.  All quite predictable.

Apparently, there's $4.3 Trillion sitting on the sidelines in cash, (no idea how CNBC reckon they get that info) so the talk is FOMO will soon start rearing its head and some of that will move back into risk assets.  So, would I buy an ETF on the S&P500?
 
I think earnings are going to disappoint in 2023.
The S&P 500 is in my opinion priced for a very soft landing which is not a given.
Despite the 10 year risk free rate being in the mid 3's the S&P500 is trading in the very late teens on a forward PE basis assuming earnings on average fall about 10%.  How much they fall on average is anyone's guess.  Should the S&P500 be trading at a premium to long run metrics given the Fed hasn't finished yet and its likely there will be some sort of recession in 2023 ?  I would argue the market is priced close to a level where participants are expecting perfection and perfection is a soft landing, minimal earnings decline and the Fed pivoting some time in 2023.  Sure all of things could happen, but maybe not.

[KW]

Services inflation at a 4 decade high... Not out of the woods yet i think.

Yes, there is also a fair bit of artificiality in those numbers as well.  First the rundown of the US SPR is what is lowering energy prices (eventually that will stop) and the huge numerical adjustment to health insurance that is going on.  Good run down of the inflation numbers here - https://wolfstreet.com/2023/01/12/services-inflation-spikes-to-4-decade-high-cpi-for-gasoline-durable-goods-plunge/

[mcdongle]

China opening up again should push the price of oil up.

https://www.reuters.com/markets/commodities/china-issues-second-set-2023-oil-import-quotas-up-2022-2023-01-09/

[Waltzing]

Some stocks halted  on opening trade...

Looks like defence stocks in the US have been trending down long term not up...

The interest rate hikes int he US hitting all sector but ? mineral resources such as copper?

https://www.cnbc.com/2023/01/24/many-new-york-stock-exchange-listed-stocks-halted-for-a-technical-issue.html

[Waltzing]

rocketing into the future ...

and away from the local eyes of the greens and IWI....

majority of staff are now in the US.... see ya later NZ....

https://www.nzherald.co.nz/business/rocket-lab-takes-another-stab-at-first-us-launch-updates-on-neutron/5Q3DZGJI5RC63MLGRXEYQDVEH4/

[Mr Cashflow]

https://www.reuters.com/article/usa-ratings-moodys/update-1-moodys-downgrades-10-us-banks-warns-of-possible-cuts-to-others-idUSL1N39P03N

[Onemootpoint]

Interestingly enough, the S&P was only slightly down immediately after JP's Jackson Hole speech.

Watch Fed Chair Powell's full remarks on rate hikes and the economy from Jackson Hole

https://www.youtube.com/watch?v=u1dV2kHbCAQ

[Onemootpoint]

Ultimately the S&P ended nearly 0.7% up shrugging off/ taking in its stride the somewhat hawkish remarks of JP.

What will the new week bring?