Monthly Outlook - February 2023

RSummary of the Month

January showed a strong rebound in the markets, with the S&P up over 6% and the Nasdaq up nearly 9%, driven by strong earnings, despite the scattering of results.

Economic data, for the most part, showed relative strength, as GDP growth exceeded expectations in 4Q, while labor costs slowed.

Overall, investors are beginning to hope that a soft landing will be possible, despite the interest rate hikes on the horizon. We are, and have been, skeptical of Powell's ability to thread that needle, especially since the impact of economic decisions may take months to unfold.

Macro Corner

January offered relief to investors, with the S&P rising substantially and the Nasdaq advancing further. The S&P has nearly recovered from its December decline, although it is still nearly 20% below its all-time high.

Economic data has been positive during the month, which has emboldened investors to increase risk. The key measure the Fed is interested in, inflation, was negative in December, implying that prices fell during the period and a sign that rate hikes are starting to work.