Three Takeaways from January 2023
January was a positive month for the markets with the S&P 500 up approximately 6% at the time of writing this. Even bonds did well this month which after 2022 was a welcome change. While it was good to see markets start the year in an upward direction, there is a lot of information to unpack. Below are 3 important takeaways.
- Earnings: as of the time of writing this post, 143 companies (of the S&P 500) have reported quarterly earnings, and approximately 70% of those results beat estimates. This is largely in-line with historical averages. Better to report to the upside. Despite this, earnings are trending towards a 5.1% annualized decline. Many companies are still left to report Q4 results, including several from big tech, but our expectation is that earnings will slow down considerably this year. Some may ask why the market continues to perform well if earnings growth is soft. Remember that the market is a forward-looking mechanism. A lot of bad news is already priced in. In addition if inflation continues to fall, this may lead to a ‘Fed pivot’. More on this later.
- Low unemployment: many analysts are calling for a recession in 2023. Several leading economic indicators are negative and exhibiting recessionary characteristics (e.g. inverted yield curve). Regardless, one data point which has been stubbornly positive is the unemployment rate, currently at 3.5%. As layoffs continue to occur, this number should trend higher. If we do enter a recession, the strength of the labor force will hopefully keep it short and shallow.
- Waiting for a Fed pivot: much of the data released in January showed inflation slowing. The CPI came in at 6.5%, continuing a downtrend in pricing pressure. As the housing component of the CPI catches up (currently 33% of the CPI approximately), we are cautiously optimistic inflation will continue its downward trend, leading to an eventual fed pivot. For the market to continue higher, we will likely need the fed to slow down and eventually cease its interest rate hiking campaign.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.