February 27, 2023 •Nathan Willis
Key Events: A grim anniversary
On the anniversary of his invasion of Ukraine, Vladimir Putin blamed the west for the war and suspended participation in the START nuclear arms reduction agreement.
US economic data took a sour turn this week: 4Q GDP growth was revised down slightly while core PCE inflation (the Fed’s preferred measure) came in above expectations.
Minutes of the Fed’s January meeting confirmed officials anticipate further rate hikes.
Market Review: Stocks react negatively
Stocks experienced their worst losses in 10 weeks, with most indices finishing with losses of 2% to 3%. Bonds declined for a second week as interest rates increased across the board, reflecting hawkish Fed rhetoric.
Consumer Discretionary stocks turned in the wors performance this week, reacting to the Fed’s commitment to slowing growth and increasing unemployment to bring inflation down.
Outlook: Downside risks and signs of optimism
This week provided disappointments for bulls; the future may hold more downside as some short-term technical and sentiment indicators are flashing warning signs while market breadth is weakening alongside earnings and the economy.
There are some positive signs as well. While earnings for S&P 500 companies are down 4.8% (94% of the S&P 500 has reported), [1]revenues are still growing. If inflationary pressures relent, profit margins may recover. High yield spreads do not reflect fears of increased defaults. While the market is likely to remain volatile, we urge investors to remain disciplined.
[1] Source: Factset
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