by Clare Market Investments on Mar 2, 2023
Monthly Market Summary
The S&P 500 Index returned -2.5% in February, giving back some January gains and underperforming the Russell 2000 Index’s -1.7% return. Cyclical sectors outperformed, with Tech, Industrials, and Consumer Discretionary the top three performing sectors.
Corporate investment grade bonds produced a -4.2% total return, trailing corporate high yield bonds’ -1.9% total return. The negative bond returns occurred as Treasury yields increased following strong January economic data.
International stocks underperformed for the first time since October as the U.S. dollar strengthened. The MSCI EAFE Index of developed market stocks returned -3.1%, outperforming the MSCI Emerging Market Index’s -7.6% return.
Data Indicates the U.S. Economy is Off to a Strong Start in 2023
Based on January economic data and Q4 data revisions, the U.S. economy appears to be in a stronger position than economists forecasted. Job growth was robust in January as U.S. employers added 517,000 jobs, well above the average 291,000 jobs added each month in the fourth quarter. Consumer spending also exceeded expectations in January, with retail sales rising 3% month-over-month after two consecutive monthly declines to end 2022. Manufacturing output, as measured by industrial production, was unchanged in January after contracting in the final two months of 2022. Investors will want to see confirmation of recent strength in coming months, but it appears unlikely that a recession will begin in Q1 2023.
On a related note, January’s data could strengthen the Federal Reserve’s case to maintain a tighter policy stance for longer. There are two potential investment implications. First, the Federal Reserve may keep interest rates higher for longer, which would mean higher interest income for savers. Second, a longer period of restrictive monetary policy could have a more significant adverse impact on the economy and result in slower economic growth in the coming quarters and years.
An Update on Fourth Quarter 2022 Earnings Season
As of February 27th, 94% of S&P 500 companies have reported fourth quarter earnings. Blended earnings growth, which combines actual results for companies that have reported and estimated results for companies that have yet to report, is -4.9% vs Q4 2021. If the decline holds, it will mark which combines actual results for companies that have reported and estimated results for companies that have yet to report, is -4.9% vs Q4 2021. If the decline holds, it will mark Quarterly earnings growth is negative, but the results are not viewed as disastrous. However, the data indicates earnings momentum may be fading in the face of persistent macro headwinds, including the Federal Reserve’s aggressive 2022 interest rate increases and rising input costs.
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Clare Market Investments, LLC is a Registered Investment Advisor. This material is for informational purposes only. It is not intended as and should not be used to provide investment advice and is not an offer to sell a security or a recommendation to buy a security. The information is derived from sources believed to be reliable and accurate as of the date of this report, but Clare Market has not independently audited this information to validate accuracy. Further, the information maybe be at a point and time and subject to change. This summary is based exclusively on an analysis of general market conditions and does not speak to the suitability of any specific proposed securities transaction or investment strategy. Judgement or recommendations found in this report may differ materially from what may be presented in a long-term investment plan and are subject to change at any time. This report’s authors will not advise you as to any changes in figures or views found in this report. Investors should consult with their investment advisor to determine the appropriate investment strategy and investment vehicle. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. Except for the historical information contained in this report, certain matters are forward-looking statements or projections that are dependent upon risks and uncertainties, including but not limited to such factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle. Please visit our website claremarket.com for additional information and disclosures. ©2023 Clare Market Investments, LLC
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