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Market Recap – February 6, 2023

Keel Point

February 6, 2023

The Fed’s 25 bp interest rate increase and a surprising 517,000 new jobs in January, with the unemployment rate falling to 3.4% — a 53-year low — contributed to renewed confidence that the Fed can be bringing inflation down without putting millions of workers on the sidelines. 

  • The Fed’s rhetoric has changed, which supports investor confidence that the end of rate increases is nearing. Not convinced that inflation is on a sustained downward path, Chair Powell indicated a couple more rate hikes may be needed, but he also hinted that the end of increasing is in sight.
  • There is still a disconnect between the Fed’s stated intentions on rates and where the market sees them going: Chair Powell said cuts later this year are unlikely, while financial markets were still pricing in around 40 bp in cuts even after last Friday’s report of over one-half million new jobs in January.
  • The S&P 500 ticker was up 1.8% from the start of the Fed press conference last Wednesday at 2:30 until the market closed 90 minutes later.

 

While the January employment report showed 517,000 new non-farm payroll jobs in January and an upward revision of 813,000 to jobs growth in recent months, it also showed slowing wage growth, and a fall in the unemployment rate to 3.4%.

  • Average hourly earnings rose by 0.3% m/m in January, and the annual growth rate fell to a 17-month low of 4.4%. Employment Cost Index reported last Tuesday was up 1% for Q-4 2022 – 4.2% annualized rate – which is also consisted with the January jobs report.

 

The debate on a 2023 U.S. recession is ongoing, with the no-recession believers buoyed by the January jobs report and a resurgence in productivity growth. 

  • Much like we experienced in the first half of 2022, we likely will see negative GDP growth in the first quarter of 2023 as a result of burning off the unexpected 2022-Q4 inventory build-up and the U.S. deteriorating trade deficit, but without a big increase in unemployment.

 

 

 

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment advisory Services are offered under the Keel Point brand. Investment Advisory services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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