Last Week in Review – January 6, 2023

January 9, 2023

Last Week In Review

A Friday rally following an encouraging jobs report left the major indexes with a gain to start the year. Communication services stocks led the gains, helped by rallies in Charter Communications, Netflix, and Facebook parent Meta Platforms. Trading volumes were subdued over most of the week, remaining below 2022 averages. The S&P 500 Index also continued to move within a relatively tight band compared with most of 2022, with the index staying between 3,764 and 3,906 since December 16. The market was closed on Monday in observance of New Year’s Day.

US – Markets & Economy

Last week brought several closely watched economic reports, and the market’s reactions seemed to signal investors’ preference for slowing growth and inflation over a robust economy—a trade-off Federal Reserve officials have made clear that they are ready to accept. A surprise increase in construction spending in December may have been partly behind the broad indexes’ poor start to trading on Tuesday, although Tesla’s decline also played a role. Likewise, the S&P 500 and Nasdaq 100 fell over 1% on Thursday morning after payroll processing firm ADP’s tally of jobs in the private sector showed an increase of 235,000 in December, well above expectations for around 150,000 and August’s recent low of 132,000. Weekly initial jobless claims also fell unexpectedly to 204,000, their lowest level since September.

Last Friday’s official payrolls report from the Labor Department appeared to turn sentiment back in a positive direction by raising hopes that the economy could be on its way to a “soft landing,” or cooling inflation without a significant recession. Nonfarm payrolls rose by 223,000 in December, the smallest increase in two years but above expectations. The separate household survey showed that unemployment fell back to its post-pandemic low of 3.5%, last recorded in September.

A healthy job growth appeared to be accompanied by cooling growth in average hourly earnings, which rose 0.3% in December, a tick below expectations. November’s figure was also revised lower, helping bring the year-over-year gain down to 4.6%, its lowest level since September 2021. Providing further evidence that the wage competition for workers might be easing, the labor participation rate climbed back to its recent high of 62.3%—although it was still roughly a whole percentage point below its pre-pandemic levels (the rate peaked in early 2000 at 67.3%).

Friday also brought news that the Institute for Supply Management’s (ISM) index of services sector activity fell to 49.6, well below consensus and into contraction territory (below 50) for the first time since May 2020, as new orders slowed sharply. Prices paid continued to increase but at their slowest pace since January 2021. The Institute’s gauge of manufacturing activity, released earlier in the week, indicated a second month of contraction, while factory price pressures fell to their lowest level since April 2020.

Investors could only guess how the recent data would sway the decisions of Fed officials, of course. The release of minutes from the Fed’s mid-December policy meeting on Tuesday seemed to dampen an earlier rally. The minutes observed that “an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.”

Some positive statements from the head of the St. Louis Fed, James Bullard, helped bolster sentiment. In a presentation to a CFA conference on Thursday, Bullard noted that “due to front-loaded Fed policy during 2022, market-based measures of inflation expectations are now relatively low” and had returned “to a level consistent with the Fed’s 2% inflation target.”

US – Equity Market Performance

Index Friday’s Close Week Ending 1/6/2022 Weekly (+/-) Point Change 1/6/2022 % Change YTD Week Ending 1/6/2022
DJIA 33,630.61  483.36 1.46%
S&P 500 3,895.08  55.58 1.45%
Nasdaq Composite 10,569.26 102.81  0.98%
S&P Midcap 400 2,489.95  59.58 2.45%
Russell 2000  1,792.80  31.55 1.79%


US Yields & Bonds

The news of a slowdown in the services sector appeared to send both short- and longer-term U.S. Treasury yields sharply lower on Friday morning, leaving the yield on the 10-year note down over 30 basis points (a basis point is 0.01 percentage point) for the week. (Bond prices and yields move in opposite directions.) The broad tax-exempt municipal bond market traded higher through most of the week as light supply and reinvestments from January coupon payments helped to buoy performance.

The investment-grade (IG) corporate bond primary calendar was active, with new deals exceeding weekly expectations. Despite the influx of supply, corporate bonds held up relatively well amid strong macroeconomic sentiment ahead of the Fed meeting minutes. After the release of the minutes, which were perceived as hawkish, technical conditions supported IG corporates. Issuance slowed, and secondary trading volumes increased, which helped offset weaker risk sentiment.

High-yield bonds, particularly BB-rated issues, enjoyed strong demand, with the lack of new issuance and healthy coupon payments in the coming week seeming to provide a floor for prices last week. The bank loan market was firmer amid generally positive investor sentiment, although trading volumes were somewhat light.

US Treasury Markets – Current Rate and Bi-Monthly Change

3 Mth +0.24 bps to 4.58%
2-yr: -0.18 bps to 4.25%
5-yr: -0.32 bps to 3.70%
10-yr: -0.21 bps to 3.56%
30-yr: -0.28 bps to 3.69%


Interesting News Overseas

Shares in Europe surged as data indicated that the pace of inflation has slowed. The cost of natural gas also fell to levels last seen before Russia invaded Ukraine. The pan-European STOXX Europe 600 Index ended the week 4.60% higher in local currency terms. Major stock indexes also advanced. Germany’s DAX Index gained 4.93%, France’s CAC 40 Index climbed 5.98%, and Italy’s FTSE MIB Index soared 6.22%. The UK’s FTSE 100 Index added 3.32%.

Official data showed that a decline in energy price increases helped push eurozone inflation below 10% for the first time in two months. Consumer prices in December rose 9.2% year over year, below a FactSet consensus estimate of 9.7%. Even so, the core inflation—which excludes volatile food, energy, alcohol, and tobacco prices—quickened to 5.2% from 5.0% in November.

Banque de France Governor François Villeroy de Galhau, a European Central Bank (ECB) policymaker, said in his new year address that interest rates would need to rise further to reduce underlying price pressures and suggested that they could peak this summer. He also said that the ECB should be prepared to leave borrowing costs at the terminal level for as long as necessary to squeeze inflation out of the system. Swap rates tied to ECB policy meeting dates signal that the deposit rate could peak around 3.5%.

Japan’s stock market returns were negative for the week, with the Nikkei Index down 0.46% and the broader TOPIX Index falling 0.84%. Concerns about the global monetary policy tightening cycle and recessionary fears continued to weigh on sentiment. Investors speculated about the future trajectory of the Bank of Japan’s (BoJ’s) monetary policy, given the surprise modification to its yield curve control in late December. Meanwhile, Japanese authorities continued to emphasize the importance of seeing wage growth, with Prime Minister Fumio Kishida urging companies to deliver pay increases above the inflation rate.

The BoJ conducted unscheduled bond-buying operations to defend its newly increased 0.50% cap on the 10-year Japanese government bond yield, which finished the week at that level, up from 0.42% at the end of the previous week. Pressure on the cap reflected investors’ expectations that the BoJ would increasingly pivot away from its ultra-loose monetary policy stance. During the week, the Nikkei news agency reported that the BoJ could be set to raise its inflation forecasts in January, which could be perceived as providing grounds for such a pivot. The yen weakened to around the JPY 134.1 level against the U.S. dollar, from about JPY 131.1 the prior week, mainly in anticipation of further hawkishness by the U.S. Federal Reserve.

Chinese equities rose amid reports that Hong Kong would reopen its border with mainland China and that Beijing was considering relaxing curbs on borrowing for the ailing property sector. The Shanghai Composite Index advanced 2.21%, and the blue-chip CSI 300 gained 2.82%, marking its most significant gains in weeks.

Bloomberg reported that hopes of further support for property developers rose following news that Beijing may ease the stringent “three red lines” policy that featured prominently in the government’s crackdown on the real estate sector in 2020, citing unnamed sources. The policy consisted of a series of debt thresholds to curb leverage among developers seeking to borrow more. China is also considering a nationwide cap between 2.0% to 2.5% on real estate commissions to boost demand, Bloomberg reported. Separately, the People’s Bank of China announced that first-time homebuyers would be offered lower mortgage rates if new home prices fall for three consecutive months.

The changes mark a significant shift in China’s real estate policy, following a series of measures introduced in November to restore confidence in a sector that accounts for almost a quarter of the nation’s economy. Recently, the government has stepped up calls to expand fiscal spending and softened its policy stance for various industries, including internet platforms and coal imports, underscoring Beijing’s focus on prioritizing economic growth.

This Week Ahead

December inflation report is highly anticipated in the US. The headline inflation is likely to be flat month-on-month, resulting in the annual rate of inflation slowing to 6.6% from 7.1%, which could be the lowest reading since October 2021. Core consumer prices likely rose 0.3% over the previous month, bringing the annual rate to 5.7%, the lowest level in a year. Next week also features the University of Michigan’s consumer sentiment and import and export prices. Investors will also watch a speech from Federal Reserve Chair Jerome Powell at the Sveriges Riksbank International Symposium on Central Bank Independence. Also, the earnings season kicks off on Friday, with reports from Bank of America, BlackRock, Citigroup, JPMorgan Chase, and Wells Fargo, among others. Elsewhere in the Americas, Brazil and Mexico will release inflation rates for December.

Have a safe and Happy 2023!

Stephen Colavito

Stephen Colavito, Jr.
Chief Investment Officer
Perigon Wealth Management, LLC

D,M: 404.313.1382

This message is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell securities or other financial instruments. Past performance is not a guarantee of future results. Perigon Wealth Management is a registered investment adviser. More information about the firm can be found in its Form ADV Part 2, which is available upon request by calling 415-430-4140 or sending an email request to

Written by Perigon Wealth

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