January turns the tables on 2022, mostly

<html xmlns="http://www.w3.org/1999/xhtml"><head><title>LIVE MARKETS-January turns the tables on 2022, mostly</title></head><body>

Major U.S. stock indexes higher: Nasdaq out front, up ~1%

Materials leads S&P 500 sector gainers; utilities sole loser

Dollar inches down; gold, crude, bitcoin gain

U.S. 10-Year Treasury yield edges down to ~3.54%

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After a dreary 2022, equity investors appear resolved to be more optimistic in 2023. Or at least the casual observer of equities year-to-date performance on the last day of the first month of 2023 could be forgiven for harboring such hopes.

On Tuesday Jan 31, 2023, 8 of the S&P 500 .SPX 11 major industry sectors are showing gains for January with only three defensive sectors down a few percentage points YTD.

In comparison 10 of the benchmark's 11 sectors lost ground in 2022 with communication services .SPLRCL, consumer discretionary .SPLRCD, information technology .SPLRCT and real estate .SPLRCR falling the hardest with their declines ranging from a shocking 40.4% to a miserable 28.5%.

At least for January the tables have turned with discretionary showing the biggest gain at ~14%, followed by communication services, up ~13%, and then real estate, up ~9%, followed by tech, up ~8%.

The weakest performers so far in 2023 are utilities, down ~3%, healthcare .SPXHC also down ~3% and consumer staples .SPLRCS down ~2%. In 2022 utilities had been the second strongest performer, falling just 1.4% compared with the benchmark S&P's 19% drop.

By Monday, however, LPL Financial strategists Adam Turnquist and Jeffrey Buchbinder were looking dubiously at the speed of January's gains.

"The pace and composition of the rally have left many investors skeptical over its sustainability, especially amid a lackluster earnings season thus far. Of course, the market is also forward-looking, with expectations for falling inflation and a less hawkish Federal Reserve (Fed) as we progress into 2023," they wrote.

"And although the trajectory of the rally will likely slow, seasonal indicators point to a path higher for U.S. equity markets by year-end."


Here is a table comparing Jan 2023 to FY 2022:


Jan. 23 % change

FY 2022 % change

Consumer Discretionary



Communications Services



Real Estate



Information Technology















Consumer Staples










(Sinéad Carew)



Today, as the Federal Reserve convenes for its two-day policy potluck, market participants are reminded that Chairman Powell is fond of saying the central bank will remain agile as it responds to economic data.

Tuesday brought with it several bits of economic data for Powell & Co to be agile about.

First, the employment cost index (ECI) USEMPC=ECI, which combines wages and benefits, increased by a tidy 1% in the fourth quarter, 0.2 percentage points cooler than the previous quarter and a hair below the 1.1% consensus.

Year-over-year, the ECI grew by 5.1% in the closing months of 2022.

The Labor Department's ECI report, widely viewed as a measure of labor market slack, can be tossed atop the growing pile of evidence that inflation is indeed slowing.

In fact, adjusted for inflation, wages and salaries actually dropped by 1.2% and benefit costs slid by 1.4%.

"The key message here is that Chair Powell's oft-expressed fear of the risk of a wage-price spiral is no longer realistic," writes Ian Shepherdson, chief economist at Pantheon Macroeconomics. "The Fed should not tighten further. The 25bp hike tomorrow is a done deal, but we are raising the chance of no hike in March to 70% from 60%."

Next, the mood of the American consumer defied analyst expectations by souring in the opening weeks of the new year.

The Conference Board (CB) delivered a January consumer confidence index USCONC=ECI number of 107.1, down 1.9 points from December and landing south of the 109 level economists predicted.

While the "present situation" component brightened by 3.5 points, the "expectations" index plunged 5.6 points to 77.8, and according to CB, when that measure dips below 80, it "often signals a recession within the next year."

The dimming expectations element is "reflecting (consumers') concerns about the economy over the next six months," says Ataman Ozyildirim, CB's senior director of economics. Consumers were less upbeat about the short-term outlook for jobs. They also expect business conditions to worsen in the near term.

Next on the docket, U.S. home price growth is cooling significantly.

The S&P Core Logic/Case-Shiller 20 city composite USSHPQ=ECI showed average home prices growing at a still-toasty 6.8% year-over-year, down a sizeable 1.9 percentage points from October.

That's the index's coolest print in more than two years.

Over those two years, home price growth, along with rising mortgage rates, have jacked up the cost of monthly home payments beyond the realm of affordability for many potential buyers, especially at the lower end of the market.

But that appears to be changing.

"As the Federal Reserve moves interest rates higher, mortgage financing continues to be a headwind for home prices," says Craig Lazzara, managing director at S&P DJI. "Economic weakness, including the possibility of a recession, would also constrain potential buyers."

"Given these prospects for a challenging macroeconomic environment, home prices may well continue to weaken."

If investors need another reason to fret about an economic downturn, the present situation/expectations gap widened this month - a phenomenon which is often a recession harbinger.

Finally, the contraction of midwest factory activity unexpectedly accelerated in January.

The Chicago purchasing managers' index (PMI) USCPMI, courtesy of MNI Indicators landed at 44.3,

A PMI reading below 50 signifies a monthly slowdown, and a number below 43 is widely considered recessionary.

The Institution for Supply Management's (ISM) broader, national PMI data is due on Wednesday, and is seen inching deeper into contraction, shedding 0.4 point to an even 48.

Wall Street got greener as morning trading progressed, with a few of the usual suspects - Amazon.com AMZN.O, Microsoft MSFT.O - putting the Nasdaq out front.

All three major indexes are homing in on monthly gains.

(Stephen Culp)



The bear market may have taken a disproportionately large bite out of emerging market (EM) securities. However, Saira Malik, chief investment officer at Nuveen, doesn't expect them to be left behind when global markets eventually rebound.

According to Malik, so far in 2023, returns for both emerging markets debt and equity have outperformed their U.S. peers thanks to a number of tailwinds, including China's re-opening, improved risk sentiment, and dollar weakness.

And with EM GDP growth rates poised to outpace those of advanced economies over the next several years, Malik believes the EM landscape appears appealing.

Within EM debt markets, Nuveen is focused on countries that raised rates earlier, and is some cases, more extensively than the U.S. Fed.

As for equities, Malik says that EM valuations are "well below their long-term averages and remain inexpensive relative to the U.S., while forecasted EPS growth estimates over the next few years are notably more attractive than developed market counterparts."

Malik admits that as 2023 kicks off, EM companies carry negative earnings estimates. However, she believes that with renewed optimism over China, and the potential for improvement along the geopolitical front, consensus forecasts may prove to be too conservative.

(Terence Gabriel)



U.S. stock indexes are posting small changes early on Tuesday after wage growth data pointed to easing inflation ahead of the Federal Reserve's decision on interest rates.

Additionally, since the open, both Chicago PMI and consumer confidence both missed estimates.

The Nasdaq .IXIC is posting the biggest rise, up around 0.5%, while the DJI .DJI is around flat. This, as traders may be in wait and see mode ahead of the results of the latest FOMC meeting at 2 pm EST Wednesday. That said, according to the CME's FedWatch Tool, markets essentially see a 25 basis point hike as a done deal at 99.8%.

Meanwhile, the S&P 500 .SPX and Nasdaq .IXIC are both on track for their biggest January rises since 2019.

(Terence Gabriel)



The S&P 500 has bounced back nearly 5% in the first month of 2023, the question is - does this rally have legs?

J.P.Morgan global strategists believe the year-to-date rally is likely to fade as recession risks are merely postponed and not diminished.

"Fundamental confirmation for the next leg higher might not come, and instead markets could encounter an air-pocket of weaker earnings, activity, and capex," JPM strategists, led by Marko Kolanovic, wrote in a note.

This week is packed with catalysts - including the U.S. Federal Reserve's rate-setting meeting, earnings from mega-cap companies Apple AAPL.O, Alphabet GOOGL.O and Amazon.com AMZN.O, and the pivotal monthly jobs report - that could dictate market moves in the near-term.

Positioning in options markets isn't pointing to a very bright outlook either, according to analytics firm Spotgamma.

The recent market climb has been driven by the short dated options trade and short stock covering which generates a lot of pretty 'breakout charts' as it adds to an illusion of fundamental strength, said Brent Kochuba, the founder of SpotGamma.

Traders were net sellers of U.S. equity call options last week, with most of the flow concentrated in very short dated activity, Spotgamma noted.

"There seems to be a perception that this giant bull market is about to launch, but we feel a lot of that is ultra-short term momentum," Kochuba added.

For example, traders buying calls in Tesla TSLA.O are in for the daily momentum chase and therefore closing positions shortly after buying. Traders do not appear to be trying to position for the second quarter and beyond, Kochuba explained.

Further, it appears the tail that is not being hedged is hawkishness from the Fed, Kochuba added.

"From an options positioning perspective the market seems prone to a real sucker punch. This does not mean (Fed Chair Jerome) Powell delivers one, but it seems that outcome is underpriced."

(Medha Singh)



The U.S. House of Representatives passed a bill last Friday limiting the ability of the energy secretary to tap the strategic petroleum reserve (SPR) except in emergencies.

Republican backers of the bill said the Biden administration acted recklessly in selling 180 million barrels from the reserve last year, in the biggest release ever. That drawdown and others Biden approved have pushed the level of the SPR to its lowest level since 1983.

The Biden administration had said it acted to counter high gasoline prices in the wake of Russia's invasion of Ukraine.

Earlier last week, energy Secretary Jennifer Granholm said that President Biden will veto the bill if it ultimately passes Congress.

On December 9, NYMEX crude futures CLc1 hit a low of $70.08 before snapping higher. A week later, on December 16, the U.S. Energy Department said it would begin buying back oil for the SPR. More specifically, last October, The White House said it would buy back oil at or below about $67-$72 per barrel.

On December 9, the futures bottomed at 1.09x the value of their 200-week moving average (WMA). Since the early 1990s, this long-term moving average has acted as a powerful magnet in crude sell offs:

Crude futures are now trading around $77.00, with the disparity at 1.17x.

It may remain an open question whether crude hits President Biden's buy level. However, traders are still focused on whether the 200-WMA, which now resides just below $66.00, and is rising around 5-10 cents per week, will continue to work its magic as a powerful magnet.

Meanwhile, the S&P 500 energy sector .SPNY is just over 7% below its 2014 record intraday high.

(Terence Gabriel)




(Terence Gabriel is a Reuters market analyst. The views expressed are his own)


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