For the first time in four years, the S&P 500 Index posted a positive result in January 2023, rallying to a 6.2% gain for the month. The broad-based S&P 500 Index closed up by 6.3% during January 2023, whereas NASDAQ-100 Index closed up by 10.7% and NYSE FANG+ Index closed up by 18.7%. Across S&P 500 Index, consumer discretionary and communication services were the top-performing sectors; the utilities and healthcare sectors were inadequate.
US GDP Growth Rate
The US economy beat expectations in the last quarter of 2022. The real Gross Domestic Product (GDP) expanded at an annualized pace of 2.9% in the fourth quarter relative to the third quarter. At first glance, the GDP report revealed that the U.S. economy expanded at an above-trend pace in the fourth quarter. Underlying details, however, were less encouraging than the stronger-than-expected headline gain. When combined with the waning performance of recent monthly data, the Q4 GDP report suggests that the U.S. economy ended last year with a distinct loss of momentum that is likely to carry through into 2023.
US CPI Data December
The December Consumer Price Index (CPI) data showed modest deflation to finish 2022 with the headline CPI declining 0.1% during the month. The report showed clear signs that inflation is slowing. The falling energy prices and slower food inflation have played a role, but there’s also a normalization underway for prices of goods and services that were distorted by the pandemic, such as automobiles and airfares
US Fed Rate Hike
As expected, the U.S. Federal Reserve lifted its benchmark rate by a quarter-percentage point smaller than the half-point hike approved in November 2022 while acknowledging that inflation has recently eased. The clear message was that the job is not yet done in getting inflation back down to 2% and further tightening lies ahead, but just how much remains uncertain.
The rally in the financial market may be a backdrop for the anticipation that Federal Reserve (Fed) would have to decline the key fed fund rate by the end of 2023 in contrast with FED’s positioning of ending 2023 at higher level with no reduction in rate cut.
US Job Sector
The Labour Department reported that employers added 517,000 non-farm jobs in January 2023, roughly triple consensus estimates and the biggest gain in six months. The unemployment rate slipped to 3.4%, its lowest level since 1969 (Weekly jobless claims, fell to their lowest level in nine months).
Investors seemed to take the news mostly in stride, as the tight labour market did not seem to be flowing proportionately into wage gains.
S&P 500 EPS estimates
Overall, 50% of the companies in the S&P 500 have reported actual results for Q4 2022 to date. The blended earnings decline for the S&P 500 is -5.3%. If -5.3% is the actual decline for the quarter, it may mark the first time the index has reported a year-over-year decline in earnings since Q3 2020 (-5.7%).
The companies who have reported the Q4 results, 70% have reported actual Earning Per Share (EPS) above estimates, this number is below the 5-year average of 77% and below the 10-year average of 73%. In aggregate, companies are reporting earnings that are 0.6% above estimates, which is below the 5-year average of 8.6%, and below the 10-year average of 6.4%. If 0.6% is the actual surprise percentage for the quarter, it may mark the lowest surprise percentage reported by the index since 2008.
It has to be noted that earnings estimates for Q4 2022 were already revised downwards, so the above estimate reporting is based on already lowered expectations. During the month of January 2023, the analysts lowered EPS estimates for the first quarter by a large margin than average. The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q1 for all the companies in the index) decreased by 3.3% (to $52.41 from $54.20) from December 31, 2022 to January 31, 2023.
While analysts were decreasing EPS estimates in aggregate for the first quarter, they were also decreasing EPS estimates in aggregate for all of 2023. The bottom-up EPS estimate for CY 2023 declined by 2.5% (to $224.88 from $230.57) from December 31, 2022 to January 31, 2023.
Lastly, the attractiveness of the U.S. dollar has diminished due to fall in the US CPI Inflation. This may be resulting in the depreciation of the US dollar by 1.3% during the month of January 2023.
(Source: Mirae Asset Management: Passive at a Glance – Jan 2023 )