Weekly market Recap – January 30th

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  • The recent rise in stocks have last year’s wish for a “soft landing” coming back to people’s minds.

  • With the positive data this week, many believe it is more achievable.

  • Others believe it will give the Fed more reason continue aggressive tightening measures.

  • Ten-year Treasury yields declined more than 80 basis points from early November to mid-January.

  • This can be attributed to less hawkish stances by the Fed recently regarding a looming recession.

  • Are markets getting complacent? The VIX (right) says yes.

With Apple, Meta, and Amazon earnings looming, Nasdaq is at an inflection point:

This famous ETF is up 22% off its lows but may show sentiment shift:

  • Cathy Wood’s famous innovation fund seems to be breaking its long-term downtrend, forming a bullish “reverse head and shoulders” pattern.

  • This fund represents some of the more innovative, but also some of the most speculative names and industries in the market.

  • These names traditionally perform poorly with higher rates, since they are required to borrow for funding R&D at less favorable rate due to there unproven track records.

  • This move off the bottom suggests risk sentiment is beginning to shift and potential “bargain hunting” is beginning.

With plenty of gas, Europe continues to outperform:

  • In the latest sign European equities are winning fans among investors this year, the biggest US-listed ETFs focused on the region’s stocks is set for its largest monthly inflow since June 2021.

  • Since the “winter crisis” never occurred, and “infarction” is curbed so far, these funds have added $700 million this month alone.

The EURO has rallied against the USD, will this trend continue?

  • Economic risk-reward had flipped for the euro and bearish for the dollar, due to divergence in economic growth indicators.

  • As euro-zone gauges outperform expectations at the same time US readings underwhelm, this trend may continue.

Energy sector still strong, but remains vulnerable:

  • As demand for driving slows in the winter months, inventories are building.

  • This can eventually put pricing (and margin) pressure on the energy sector, particularly the smaller producers.

  • Recent overall gains in markets have kept energy names higher (for now).

ESG continues to see outflows as reality sets in:

  • Global flows into ESG-related funds dropped by more than half last year from a record in 2021, and more volatility may be in store for 2023.

  • In contrast to the popular narrative pushed by money management firms who create these products, the plunge was likely driven by terrible performance.

  • “Concentration Risk” is a primary concern as too money much is chasing the same group of stocks.

  • The wage premium of unionized workers in the US verses non-union shrank last year to the lowest in more than 2 decades. Unionization overall has declined 6%.

  • This tight labor market has artificially boasted earnings, as bottom lines increased despite slower demand for some goods and services.

  • Homebuilders are beginning to signal that the worst is behind them as confidence rose in January after falling every month in 2022.

  • This may be good news for the broader economy, as mortgage rate ease and the market is trying to put in a bottom.

  • Skeptics believe although there may be pent up demand, it does not mean the bottom is currently in place.

Bad news is good news in a bottoming market:

  • Initially as layoffs increase, share prices often increase right along with it.
  • It helps increase margins initially, but if demand does not pick up it can become a false rally.