The stock market’s early-year rally stalled further this week, with the Dow posting its third straight week of losses, while the S&P 500 ended two straight weeks of losses for the first time this year.
Beneath the surface, retail investors continue to buy with enthusiasm, as data from VandaTrack released Thursday showed about $1.5 billion enters the market daily from this group.
And while single-stock action remains volatile and earnings season continues to fireworks — see DraftKings (DKNG) and Shopify (SHOP, respectively, up 13% and down 15% following this week’s earnings results — big market action continued Dominate topic: the US economy.
A scenario without landing
The US economy remains more resilient than most experts expected as a cumulative 4.5% hike in Federal Reserve interest rates since March 2022 has yet to stall jobs, consumer spending or headline growth.
This week, retail sales data showed consumers showed little restraint at the start of the year, with sales rising 3% in January, the biggest monthly rise since March 2021.
Wednesday’s data came just a day after January inflation data showed price increases were firmer-than-expected at the start of the year, with the consumer price index (CPI) up 0.5% from last month and 6.5% from a year earlier. 4% rose.
The “core” CPI, which excludes the more volatile cost of groceries and gas, rose 0.4% over the last month and 5.6% over the year.
Taken together, these reports show that inflationary pressures are easing less quickly than expected and consumers are less sensitive to these pressures.
In 2022, talk of the US economy broke into two fundamental camps – hard landing and soft landing.
In a hard landing, the Fed’s rate hikes would push the economy into recession and severely weaken the job market. On a soft landing, rate hikes would curb inflation without sending the economy into a downturn.
The story goes on
But now a third path has emerged among economic commentators: a “no landing.”
As Yahoo Finance’s Alexandra Semenova explained on Friday, “no landing” means inflation remains high but the economy continues to grow.
Some economists, as noted by Alexandra, consider this scenario nonsensical. From this perspective, the economy is cyclical and growth will rise and fall over time. Just because the economy isn’t “landing” – ie slowing significantly or entering a recession – this year doesn’t mean it won’t. It just means it hasn’t happened yet.
As earnings season cools and the next Fed policy meeting in mid-March quickly approaches, you can expect only more talk about what kind of “landing” for the US economy is next.
Federal Reserve Chair Jerome Powell responds to a question from David Rubenstein (not pictured) during a discussion on stage at a meeting of the Economic Club of Washington at the Renaissance Hotel in Washington, DC, the United States, February 7, 2023. REUTERS /Amanda Andrade-Rhoades
Mixed dates continue
Retail sales and inflation data were the stars of the economic calendar last week.
But not all data painted the relatively benign “consumers shrug off higher prices” picture reflected in this pair of reports.
A manufacturing sector reading released Thursday morning by the Federal Reserve Bank of Philadelphia showed that pressures in the manufacturing sector are ongoing and mounting.
The Philly Fed’s read of terms and conditions fell to its lowest level since May 2020.
Gurleen Chadha, US economist at Oxford Economics, said in a note released on Thursday that this report was “not reassuring” after a similarly weak reading from the New York Fed’s own manufacturing report earlier this month.
“Weakness in manufacturing is ongoing amid a slowdown in the global economy, past US dollar appreciation and higher interest rates curbing demand for goods,” Chadha wrote. “With worries flaring up that the economy could slip into a mild recession this year, the worst is likely to come for the manufacturing sector.”
As of Friday morning, The Conference Board’s often-overlooked Leading Economic Index posted a 10th straight monthly decline in January.
“Sensible minds can argue about whether the economy is headed for a recession or a soft landing, especially after a recent set of strong data,” said Wells Fargo economists Tim Quinlan and Shannon Seary. “However, the Leading Index does not ramble on.”
As has been the case for several months now – and perhaps to a degree that is unnerving for those who closely follow every move in the US economy – there is something in the latest data for everyone.
Bitcoin $25,000
Last week, we noticed that fundamental pressures were building in the crypto space as companies scaled back plans and regulatory action increased.
Regulatory action continued this week, particularly as the SEC indicted Terraform Labs and its founder, Do Kwon, on securities fraud.
Though it feels like ages ago in the crypto space, the collapse of the Terra blockchain ecosystem and its algorithmically-backed stablecoin Terra USD sparked a wave of crypto bankruptcy filings in 2022.
Against this background, however, Bitcoin (BTC-USD)’s brilliant start into 2023 only continued.
And on Thursday, Bitcoin surpassed $25,000 for the first time since August 2022.
Year-to-date, Bitcoin is up about 50%.
In a note to clients Friday, Bank of America Global Research strategist Michael Hartnett described the movement of the world’s largest cryptocurrency as “feverish.”
However one characterizes the move, Bitcoin appears determined to steer a course that is independent of what remains largely bearish news regarding the crypto industry. Maybe there’s nothing beefier than that.
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