Stocks rallied through most of the week on hopes that the FED is nearing its hiking of short-term interest rates but fell on Friday following a robust January jobs report.  Major stock indices were mixed for the week.  While most inflation data have been coming in softer, the red-hot labor market is likely to keep inflation from falling to 2% this year.  Despite several large companies announcing layoffs, the January jobs number was very strong and first-time claims for unemployment were very low.  While wage growth has slowed, labor costs are likely to remain well above the 2% target for some time.

The FED hiked its benchmark interest rate 0.25% to a range of 4.5% to 4.75% and noted that while progress is being made against inflation, it will likely hike another 0.25% in March.

4^th quarter earnings releases to date have declined over 5% from the third quarter.

The Eurozone reported 2022 growth that exceeded both the U.S. and China despite a more severe energy crisis from the war in Ukraine.  Typically, the Eurozone’s growth lags both the U.S. (2.1% in 2022) and China (3.0% in 2022).  This was largely due to timing of reopening following the pandemic with the U.S. largely reopening the economy in 2021, Europe in 2022 and China not until 2023.  Also, the Eurozone responded quickly to the energy crisis with Germany adding two liquified natural gas import terminals.

The European Central Bank raised its benchmark interest rate 0.5% to 2.5% and indicated it will likely increase it another 0.5% in March.

The Bank of England raised its benchmark interest rate 0.5% to 4.0%.

The International Monetary Fund upwardly revised its expectation for world growth from 2.7% from 2.9% for 2023 increasing to 3.1% in 2024.

Treasury bond yields were mixed with the 30-year bond at 3.629% and the 10-Year note at 3.535%.  30-year mortgage rates fell to 6.09%.  Crude oil fell to $73.26 a barrel and natural gas fell to $2.394 per MMBTUs.  The U.S. dollar index rose to 102.99 and gold fell to $1877.90 an ounce.

• The Eurozone reported:
  • Gross domestic product rose 3.5% for the calendar year 2022, faster than the U.S. or China.
  • Consumer prices in January were up 8.5% from a year ago, down from 9.2% year over year in November.
  • Excluding volatile food and energy, prices were up 5.2%.
• The S&P CoreLogic Case-Shiller national home price index fell 0.3% in November and is down 2.5% from its June peak.
• S&P Global released its purchasing manager’s indices for January.  Keep in mind that anything over 50 represents expansion and anything under 50 represents contraction:
  • U.S. manufacturing PMI rose from 46.2 to 46.9.
  • U.S. services PMI rose from 44.7 to 46.8.
  • Canada manufacturing PMI rose from 49.2 to 51.0.
  • Eurozone manufacturing PMI rose from 47.8 to 48.8.
  • Eurozone composite PMI rose from 49.3 to 50.3.
  • Japan manufacturing PMI was unchanged at 48.9.
  • Japan services PMI rose from 51.1 to 52.3.
  • China manufacturing PMI rose from 49.0 to 49.2.
  • China services PMI rose from 48.0 to 52.9.
  • Mexico manufacturing PMI rose from 50.6 to 51.3.
• The Labor Department reported:
  • Productivity grew 3.0% in the fourth quarter.  Productivity growth is important to make pay increases have a smaller impact on inflation.
  • Unit labor costs grew 1.1% in the fourth quarter as compensation increased 4.1% but productivity increased 3.0%.
  • Job openings in December were 11.0MM, up from a revised 10.4MM in November.
  • 4.1MM workers quit their jobs in December.
  • The U.S. added a net of 517,000 jobs in January and the unemployment rate fell to 3.4%, the lowest in over 53 years.
  • Wages (excluding benefits) increased 4.4% in January from a year earlier, down from 4.8% year over year in November.
  • Seasonally adjusted first-time claims for unemployment were 183,000, down from 186,000 in the prior week.

• • • The 4-week moving average of claims, designed to smooth out volatility, was 191,750 down from 197,500 in the prior week.
    • For the full unemployment report go here:  https://www.dol.gov/ui/data.pdf .
• The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf .  Also, the EIA reported in the prior week:
  • Field production of crude oil rose was unchanged at 12.2MM BPD.
  • Natural gas storage fell 151BN cubic feet and is above the 5-year average at this time of year.
• Baker Hughes reported the number of active oil rigs fell 10 to 599.  The number of active natural gas rigs fell 2 to 158.
• Factset reported, with 50% of S&P500 companies reporting, that the blended earnings decline was 5.3%.

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Thank you,

Loren C. Rex, CFP^®, MA                                                                     Erik A Smith, AIF®

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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.