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Equities in the Green as Markets Eye Slowing Inflation and Rate Raises

Weekly Update – January 13, 2023

  • The S&P 500 index rose 2.7% last week as investors grew hopeful for Federal Reserve officials to slow their pace of rate increases after data showed US consumer price inflation eased last month.
  • The market benchmark ended Friday’s session at 3,999.09, up from last Friday’s closing level of 3,895.08. The index is now up 4.2% for the year to date but down 14% from a year ago.
  • The week’s climb came as hopes ramped up for the Fed’s Federal Open Market Committee to raise the central bank’s key lending rate by just 0.25 percentage point at its next meeting; this would be a slowdown from the 0.50 percentage point increase made at its December meeting and increases of 0.75 percentage point each made at previous meetings in 2022. The next meeting is scheduled for Jan. 31 through Feb. 1.
  • The hopes for a slower pace of rate increases came as data showed the US consumer price index rose 6.5% year over year in December, having pared from a year-over-year increase of 7.1% in November and a peak increase of 9.1% in June. The core US consumer price index, which excludes food and energy prices, rose 5.7% year over year in December, down from a 6% increase in November.
  • While investors found the slowing pace of consumer price increases encouraging, they continue to worry about how much higher rates will have to climb to combat price growth as inflation remains well above the Fed’s target of just 2%.
  • Underscoring investors’ concerns about the Fed’s rate increases, several big banks on Friday noted they are setting aside money to prepare for a possible recession. Among them, JPMorgan Chase (JPM) reported Q4 per-share earnings and revenue above analysts’ mean estimates but said it is preparing for a “mild recession.”
  • By sector, consumer discretionary had the largest percentage increase last week, up 5.8%, followed by a 4.6% rise in technology and a 4.4% boost in real estate. Just two sectors were in the red for the week: Consumer staples fell 1.5% and health care edged down 0.2%.
  • Cruise operators led the gainers in the consumer discretionary sector. Shares of Norwegian Cruise Line Holdings (NCLH) jumped 20% on the week while Royal Caribbean Cruises (RCL) climbed 15% and Carnival (CCL) added 14%.
  • In the technology sector, shares of First Solar (FSLR) rose 15% as the company said it closed its sale of the 141-megawatt Luz del Norte solar power plant in Copiapo, Chile, to asset manager Toesca. Morgan Stanley raised its price target on the stock to $194 per share from $146.
  • The gainers in real estate included Equinix (EQIX) and Extra Space Storage (EXR) as the stocks received positive analyst actions. Shares of Equinix rose 7.1% for the week as Goldman Sachs raised its price target on the stock to $775 each from $680 while keeping its investment rating on the stock at buy. Shares of Extra Space Storage (EXR) climbed 5.5% as Raymond James upgraded its investment rating on the stock to outperform from market perform.
  • On the downside, the decliners in consumer staples were led by food products companies. Shares of McCormick (MKC) fell 6% while JM Smucker (SJM) shares slipped 5%, General Mills (GIS) shares lost 4% and Campbell Soup (CPB) shares shed 3.6%.
  • Next week, the US stock market will be closed on Monday for Martin Luther King Jr. Day. Data expected later in the week include retail sales and the producer price index for December on Wednesday, December building permits and housing starts on Thursday, and December existing home sales on Friday.
  • The Q4 earnings reporting season will also move into full swing. Companies expected to release quarterly results next week include Morgan Stanley (MS), Goldman Sachs (GS), United Airlines (UAL), Charles Schwab (SCHW), Alcoa (AA), Procter & Gamble (PG), Netflix (NFLX) and Schlumberger (SLB).
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