Presented by Mark Gallagher                                  

General Market News

• The future path of interest rates is uncertain for 2023, but according to Bloomberg’s economic forecast, the average Bloomberg surveyed economist expects to see another half percent of increases in the first quarter of the year before levels remain stable through the second and third quarters. The Federal Reserve (Fed) is scheduled to announce its next rate decision this week, on Wednesday, February 1. Consensus expectations are pointing to a 25 basis point (bp) increase. Some analysts, however, aren’t ruling out a more hawkish 50 bps hike as recent indicators have shown easing financial conditions and softening inflation. Fed Chair Powell’s post-meeting press conference will be closely monitored for forward guidance to get a better sense of how high rates are expected to go and for how long. Since markets have been pricing in 2023 rate cuts despite Fed officials’ rebukes of such expectations, Powell will likely tread carefully and avoid giving any signals that the Federal Open Market Committee’s (FOMC) foot may come off the inflation-fighting pedal anytime soon. U.S. Treasury yields were up modestly last week. The 2-year, 5-year, 10-year, and 30-year gained 6 bps (to 4.21 percent), 11 bps (to 3.64 percent), 7 bps (to 3.55 percent), and 2 bps (to 3.68 percent), respectively.
• The Nasdaq Composite Index led the way last week as global equities rallied. Earnings from Microsoft and Tesla helped support the moves up in technology and auto stocks. Additionally, American Express and Capital One Financial were both up more than 10 percent on the back of better-than-expected results. That said, last week was not all good news; 3M, Dow Chemical, and Newell Brands all announced workforce reductions. Additionally, Intel shares fell by more than 6 percent on Friday after the company reported a larger-than-expected revenue decline and a net loss of $644 million for the quarter. The company was hit by softening demand for its chips as well as higher expenses at its factories, which weighed on overall margins. This week will be another big week of earnings with Exxon, Pfizer, McDonalds, UPS, Caterpillar, Meta Platforms, Apple, Alphabet, and Amazon as just some of the names slated to report.
• Last week’s data focused on overall economic growth as well as personal spending and income. Thursday saw the release of the advanced estimate of fourth-quarter GDP. The fourth-quarter GDP report showed that the economy grew more than expected. Personal consumption slowed during the quarter, although the 2.1 percent annualized increase in consumption to end the year was still solid on an historical basis. Also released on Thursday was durable goods orders Headline and core durable goods orders both came in above expectations to end the year. The surge in headline orders was largely due to a spike in volatile transportation orders.
• The week wrapped on Friday with the personal income and spending reports for December. While personal income continued to grow, spending fell for the second consecutive month.

Source: Bloomberg, as of January 27, 2023

Source: Bloomberg, as of January 27, 2023

What to Look Forward To

This week will be a busy one in terms of economic policy and releases, starting with the release of the Conference Board Consumer Confidence Index data for January on Tuesday. Economists expect to see slightly better consumer confidence in January.

Wednesday will see the FOMC’s federal funds rate decision. The Fed is expected to hike the federal funds rate by 25 bps at its February meeting, as the central bank aims to slow the pace of rate hikes in 2023. Also out on the same day will be the ISM Manufacturing index report for January. Manufacturer confidence is expected to decline modestly and remain in contractionary territory to start the year.

Friday will see the release of the employment report and ISM Services index data for January. The pace of hiring is set to slow again; however, even with the anticipated slowdown, hiring is expected to remain healthy on an historical basis. Service sector confidence is expected to partially rebound in January after suffering from a much larger-than-expected decline in December. If estimates prove to be accurate, the index would start the year in expansionary territory.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com

Authored by the Investment Research team at Commonwealth Financial Network.

© 2023 Commonwealth Financial Network®

Presented by Mark Gallagher

General Market News

• As the Federal Open Market Committee (FOMC) enters the quiet period leading up to its next policy meeting (January 31–February 1), the average Bloomberg surveyed economist expects to see another half percent of increases in the first quarter before levels remain stable through the second and third quarters. Inflation data has shown recent signs of softening, but Federal Reserve (Fed) officials will require more convincing signs before there are any serious conversations about stopping its cycle. Fed Governor Lael Brainard explained, “Even with recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2 percent on a sustained basis.” Still, as we approach the February 1 FOMC rate decision, futures markets are confidently pricing in a smaller hike of 25 basis points (bps). This marks a significant downshift after a string of four 75 bps hikes and one 50 bps hike in 2022. Speaking to the possibility of a quarter percentage point hike, Brainard noted, “This will enable us to assess more data as we move the policy rate closer to a sufficiently restrictive level, taking into account the risks around our dual-mandate goals.” U.S. Treasury yields didn’t see much movement last week. The 2-, 5-, and 10-year were down 7 bps, to 4.17 percent, 3.54 percent, and 3.44 percent, respectively. The 30-year ended 1 bp lower at 3.6 percent.
• The Nasdaq Composite outperformed the Dow Jones Industrial Average last week as growth equities outperformed value equities. The outperformance of the Nasdaq was due to the drop in Treasury yields on the back of weaker-than-expected retail sales for December and softer-than-expected inflationary data in the form of the Producer Price Index (PPI). The PPI, which measures the average change over time in the selling prices received by domestic producers, fell 0.5 percent in December versus 0.1 percent expected. As a result, the economy showed hints of slowing faster than expected and fueled hopes that the Fed will ease the magnitude and pace of its rate hikes in 2023. The falling Treasury yields translate into a lower cost of capital for communication services, energy, technology, and consumer discretionary, which all outperformed. Industrials, utilities, and consumer staples lagged.
• The highlights of last week came on Wednesday with the release of the retail sales, PPI, and industrial production data for December. Headline and core retail sales both by more than expected to end the year. Producer prices fell more than expected in December, due in part to falling gas prices during the month. Industrial production also fell more than expected in December, driven by a larger than expected 1.3 percent decline in manufacturing production.
• The week wrapped on Friday with existing home sales for December. Existing home sales fell less than expected in December; however, the annualized pace of sales fell to its lowest level since 2010 to end the year.
  

  Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
  S&P 500	–0.65%	3.55%	3.55%	–8.17%
  Nasdaq Composite	0.55%	6.47%	6.47%	–18.40%
  DJIA	–2.66%	0.78%	0.78%	–0.54%
  MSCI EAFE	0.01%	7.05%	7.05%	–6.36%
  MSCI Emerging Markets	0.63%	8.39%	8.39%	–14.27%
  Russell 2000	–1.04%	6.06%	6.06%	–4.71%

  Source: Bloomberg, as of January 20, 2023

  Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
  U.S. Broad Market	2.89%	2.89%	–8.88%
  U.S. Treasury	2.37%	2.37%	–8.98%
  U.S. Mortgages	3.28%	3.28%	–7.49%
  Municipal Bond	2.83%	2.83%	–4.61%

  Source: Bloomberg, as of January 20, 2023

  What to Look Forward To

  This week’s data will focus on economic growth, durable goods, and personal spending and income.

  Thursday will see the release of advance estimate fourth quarter GDP growth and preliminary estimate durable goods orders data for December. Economists expect to see continued signs of economic growth when the fourth quarter GDP report is released. Personal consumption growth is set to rise during the quarter, supporting overall economic growth. Orders of durable goods are set to rise in December, driven in part by an increase in volatile transportation orders.

  Friday will see the release of personal income and personal spending reports for December. Both are expected to come in mixed, with economists projecting a modest increase for incomes during the month, while spending is set to drop.

  Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

  Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com

  Authored by the Investment Research team at Commonwealth Financial Network.

  © 2023 Commonwealth Financial Network®

Presented by Mark Gallagher                                  

General Market News

• The future path of interest rates is uncertain for 2023, but the average Bloomberg surveyed economist expects to see another half percent of increases in the first quarter before levels remain stable through the second and third quarters. Last week’s release of December Consumer Price Index (CPI) data—coming down 0.1 percent, in line with expectations—showed that consumer prices continue to moderate. Signs of softening prices may bolster the case for the Federal Reserve (Fed) to reduce the size of its February 1 rate hike to 25 basis points (bps), but a 50 bps hike is still on the table. Market participants will be looking for signs that more convincingly point one way or the other. U.S. Treasury yields were down across the curve last week. The 2-year, 5-year, 10-year, and 30-year fell 9 bps (to 4.16 percent), 13 bps (to 3.27 percent), 8 bps (to 3.48 percent), and 7 bps (to 3.62 percent), respectively.
• International, small caps, and growth stocks all fared well last week as continued inflationary cooling has investors looking at a potential pause—or at least smaller rate increases—from the Fed. Support around equities was threefold. Firstly, a continued drop in the December CPI put the year-over-year headline inflation rate at 6.5 percent. This was coupled with the University of Michigan consumer sentiment survey, which indicated consumers’ short-term inflation expectations were for 4 percent and represented the fourth consecutive decline of these expectations. Secondly, we also saw bonds rally since falling inflation means less of the percentage paid via coupons will be eroded via inflation, which lowers the cost of capital. Thirdly, the reopening of China leads to the belief that economic growth may be reaccelerating. The result was a rally for growth and emerging markets, which both benefit from lower U.S. central bank rates and a weaker U.S. dollar. The top-performing sectors last week were consumer discretionary, technology, and real estate. Sectors that lagged were consumer staples, health care, and utilities.
• Last week’s data was focused on inflation and the consumer, with the highlights coming on Thursday with the release of the CPI for December and the preliminary January University of Michigan consumer sentiment survey. Headline consumer prices fell 0.1 percent in December, and year-over-year consumer inflation moderated. This report indicates that tight monetary policy is working to help combat inflation, although there is still work to be done to get price growth back under control. Consumer sentiment improved more than expected to start January, supported by falling short-term inflation expectations that came in below estimates.

Source: Bloomberg, as of January 13, 2023

Source: Bloomberg, as of January 13, 2023

What to Look Forward To

This week’s data will focus on the consumer, producer inflation, and housing, kicking off on Wednesday with the release of retail sales and the Producer Price Index reports for December. Retail sales are set to fall in December, which would mark two consecutive months of slowing sales. Headline producer prices are set to fall modestly, which would be in line with the decline in headline consumer prices we saw in December.

Thursday and Friday will see the release of housing start, building permits and existing home sales for December. Building permits are set to increase modestly while starts are expected to decline for the fourth consecutive month. Existing home sales are once again expected to decline, which would mark 11 straight months of declining sales.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com

Authored by the Investment Research team at Commonwealth Financial Network.

© 2023 Commonwealth Financial Network®

Presented by Mark Gallagher                                  

General Market News

• The Federal Reserve (Fed)’s policy rate rang in the new year at a level of 4.5 percent. This came after an historic increase of 4.25 percent over the course of 2022. While the future path of interest rates is far from certain as we ease into the early days of 2023, Bloomberg surveyed economists are anticipating another half percent of rate hikes in the first quarter. Expectations then point to rates remaining stable through the second and third quarters before lowering toward the end of the year. U.S. Treasury yields increased modestly during the final week of 2022. The 2-year, 5-year, 10-year, and 30-year gained 5 basis points (bps) (to 4.39 percent), 1 bp (to 3.98 percent), 11 bps (to 3.86 percent), and 11 bps (to 3.94 percent), respectively.
• The last week of the year saw U.S. indices decline, while international indices such as the MSCI EAFE Index and Emerging Markets Index were up slightly. The Russell 2000 was also up slightly and many of these trends were indicative of those seen throughout 2022. The technology-focused Nasdaq Composite Index was among the hardest hit last year as the companies that scaled out quickly in the low interest rate environment following the great financial crisis and in 2020 saw those trends reverse in 2022. Companies such as Amazon (AMZN), Netflix (NFLX), Walt Disney (DIS), and Meta Platforms (META) were among the worst 15 contributors for the S&P 500 index in 2022. These names focused on scaling ahead of profitability in prior years. These names suffered as central banking policy became more aggressive, and the cost of capital rose amid high inflation in 2022. Amazon was focused on scaling its warehousing and ecommerce market share; Netflix scaled out subscribers and viewership, agnostic of who was paying for the service; Walt Disney launched its own Disney+ streaming platform to compete with Netflix; and Meta scaled its Metaverse concept, which continues to be a costly work in progress in achieving its vision for the future of online interaction.
• The Dow Jones Industrial Average, MSCI EAFE, and Russell 2000 fared better in 2022. The energy sector was just one of three positive sectors for the year, alongside utilities and consumer staples. That said, energy was the clear winner with the S&P 500 energy sector up more than 68 percent for the year versus just 2.16 and 0.42 percent in utilities and staples. Other sectors that held up a bit better included health care, industrials, financial, and materials. All three indices carry greater exposure to energy, utilities, staples, health care, industrials, and financials than the Nasdaq Composite. Consumer discretionary was also a major factor in 2022 as these S&P 500 sectors were down by 25.96 percent, 33.93 percent, and 38.56 percent, respectively. We look forward to 2023 to see if these trends will continue and if lower bars for sectors that were down in 2022 will set up easier comparisons in the second half of the year.
• Last week’s data primarily focused on the housing market and the consumer. There were no major economic data releases during the holiday-shortened week.

Source: Bloomberg, as of December 30, 2022

Source: Bloomberg, as of December 30, 2022

What to Look Forward To

This week will be full of important economic releases, spanning ISM data to Federal Open Market Committee (FOMC) meeting minutes and the December employment report.

The major economic releases will ramp up on Wednesday with the release of ISM Manufacturing data and FOMC meeting minutes for December. Manufacturer confidence is expected to decline, which would leave the index in contractionary territory to start 2023. The Fed hiked the federal funds rate by 50 bps at its December meeting and signaled a likely slower path of rate hikes ahead, so the FOMC minutes will be closely examined by economists and investors for any hints on the future path of monetary policy.

Thursday will see the release of the international trade report for November. The monthly trade deficit is expected to decline in November following two months with rising deficits.

Finally, Friday will see the release of both the ISM Services and employment reports for December. Service sector confidence is set to fall in December after increased by more than expected in November. The index is still expected to remain in healthy expansionary territory during the month. The December employment report is set to show that 200,000 jobs were added during the month. The unemployment rate is expected to remain unchanged at 3.7 percent.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com

Authored by the Investment Research team at Commonwealth Financial Network.

© 2023 Commonwealth Financial Network®