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| February 06, 2023

The Week On Wall Street
Stocks were mixed last week following better-than-expected corporate reports and increasing optimism over a slowdown in interest rates. The Dow Jones Industrial Average edged lower, slipping -0.15%. The Standard & Poor’s 500 rose 1.62% while the Nasdaq Composite index led, picking up 3.31%. The MSCI EAFE index, which tracks developed overseas stock markets, increased by 1.16%.
Rally Continued
Strong earnings reports and encouraging inflation data lifted stocks ahead of the Federal Open Market Committee’s (FOMC) decision on Wednesday to hike interest rates by 25 basis points. Markets rallied following the announcement, relieved that the increase was in line with expectations and buoyed by post-meeting comments in which Fed Chair Jerome Powell acknowledged the disinflationary forces in place. Fresh earnings reports fueled further gains, with positive earnings surprises from several big-name technology companies that benefited the larger universe of Nasdaq-listed high-growth companies. Disappointing earnings from three mega-cap tech companies and a strong employment report triggered a Friday pull-back, paring the week’s gains.
Another Rate Hike
The Federal Reserve raised interest rates by 0.25%, signaling to the financial markets that it would likely hike rates by another 25 basis points at its next meeting in late March. Fed officials said the slowdown in rate hikes might provide time to assess the impact of the accumulated rate hikes. The Fed retained language in its post-meeting statement that future rate hike plans were unchanged to discourage investors’ hopes of an imminent pause in the rate-hike cycle. In his post-meeting press conference, Fed Chair Powell reiterated the Fed’s commitment not to declare victory on inflation prematurely but acknowledged that a disinflationary trend was underway.
This Week: Key Economic Data
Thursday: Jobless Claims. 
Friday: Consumer Sentiment
This Week: Notable Companies Reporting Earnings

Final Thoughts
Earnings continue to pour in and better than two-thirds are beating their expectations.  Unemployment is very low as is evidenced by last weeks jobs report. You don't typically get massive recessions in those environments. While the economy is cyclical and we'll certainly see another recession at some point, it would be quite an extrapolation to make the case for one in the very near term.

From an equity return perspective, with pretty large gains in January, we most likely “borrowed” a touch from February returns.  We think February is likely a choppy month.  However, from a longer term perspective, peaks in inflation from above 6% have been consistent with areas near major market lows.  Low inflation pressures are historically bullish and though the Fed is still raising short-term interest rates into a debt bubble, longer term rates have come down substantially from their peaks late in 2022. 

There's a lot of "Fed Speak" this week and they will continue to talk tough on inflation.

Regardless of what they say in their various press conferences, their official statement from last week's meeting is below with annotated changes from the prior meeting.  As you will see, they aren't planning anything radical, but the markets may get disjointed from whatever is said in the above speeches yet to take place. If this happens, know that the official statement trumps any speech and eventually the markets will come back to that.

Have a great week!