February 1, 2023

The wave of negativity that engulfed the markets last year was met with a ray of optimism in January as inflation decelerated, interest rates fell, China reopened, and earnings came in better than feared. The result: global equity markets rebounded strongly to start the year, highlighted by the S&P 500 having its second-best January over the past 25 years, the NASDAQ being up over 10%, and emerging markets technically entering a bull market by rallying 20% off of the lows.

So, you may wonder, with this good news, why are some of the largest companies in the economy laying off workers? Well, among several still-challenging macroeconomic indicators and expectations for a recession this year, one should look at corporate earnings and CEOs’ forward-looking commentary. Fourth quarter earnings are still being reported, but so far, the S&P 500 component companies are on pace to report their first quarterly decline in earnings since 2020.

“Companies from a wide array of industries have noted macroeconomic uncertainty and weakening consumer fundamentals – for example, falling excess savings – as reasons why business and consumer spending has slowed,” Raymond James Chief Investment Officer Larry Adam said. “More important, they expect the slowdown to continue through 2023.”

Whereas in 2022, companies were able to raise prices to account for rising costs, the weakening of consumer spending has led some companies to cut costs to preserve margins. Often, that means reducing head count.

But before we look at some of the other issues around the world and the economy, let’s look at where we stand one month into 2023.


12/30/22 Close 1/31/23 Close* Change
Year to Date
% Gain/Loss Year to Date
DJIA 33,147.25 34,086.04 938.79 +2.83
NASDAQ 10,466.48 11,584.55 1,118.07 +10.68
S&P 500 3,839.50 4,076.60 237.10 +6.18
MSCI EAFE 1,943.93 2,108.32 164.39 +8.46
Russell 2000 1,761.25 1,931.94 170.69 +9.69
Bloomberg Aggregate Bond 2,048.73 2,103.94 55.21 +2.69
*Performance reflects index values as of market close on Jan. 31, 2023. MSCI EAFE and Bloomberg Aggregate Bond reflect Jan. 30 closing values.

Now, let’s dive a little deeper.

Eyes on the Fed

The U.S. Federal Reserve (the Fed) is expected to raise the baseline interest rate two more times and then hold the line, avoiding the 1970s-style stop-and-go that was partially blamed for prolonging that inflationary period. Whether the Fed will raise rates by a quarter- or half-percentage point at each of its upcoming meetings remains to be seen and thus remains a topic for speculation.

Challenging indicators

The inversion of the yield curve – when shorter-term bonds have higher interest rates than longer-term bonds – has been a powerful indicator of an upcoming recession, historically speaking. Currently, the yield curve is deeply inverted. Further, banks are tightening lending standards, and demand surveys are pointing down. Those conditions, as well as other negative indicators, suggest a looming economic contraction.

The debt limit debate, cont.

The U.S. hit its congressionally set debt limit in January, leading the Treasury to take “extraordinary measures” to meet the nation’s obligations as Congress debates raising the limit. Historical precedence suggests we are not likely to see a deal reached until we get closer to the exhaustion of those measures. Time will tell how hot this debate will be or if it will lead us into the threat of a debt default, but the House seems primed for a fight.

A brightening global outlook

Hugely welcome in January was confirmation that inflation is settling and that the global economy might avoid worst-case expectations regarding the depth of the impending recession. Despite the downbeat tone both to business surveys and lagging economic data, financial markets appear increasingly optimistic regarding prospects going forward.

China without its zero-COVID policy

The Chinese government went from having the world’s toughest COVID-19 restrictions to essentially no restrictions at all. While a staggering number of infections caused many businesses to shut down and many people to stay home, Chinese oil imports increased by 4%, year over year, in December, which points to gradual economic recovery. The Lunar New Year travel season may provide further insight into the state of the Chinese economy and consumer confidence.

Yields remain attractive

Bonds have rallied sharply off October’s 4.24% level on the 10-year note. Similarly, credit spreads continue to grind tighter and financial conditions looser. A technical analysis suggests 4.24% was the high point in this cycle, and with current yields still at some of the highest levels in the past decade or more, fixed income overall looks attractive.

The bottom line

As has been the case for some time, the economy and world events are creating a volatile mix of crosscurrents. Though January’s equity gains are welcome, don’t read too much into the result: 2023 promises to be a complex year, though the outlook is better than the one that preceded it. It’s safe to expect volatility, but it wouldn’t be pollyannaish to expect the economy and markets to emerge with strength.

Through all of these events, we will remain committed to the pursuit of your financial goals and your well-being. Thank you for your continued trust in our guidance. If you have any questions regarding this recap – or any other topic – please reach out at your earliest convenience.


 The Gratz Park Private Wealth Team



Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the Chief Investment Officer and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australasia and Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small-cap securities. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. An investment cannot be made in these indexes. The performance mentioned does not include fees and charges, which would reduce an investor’s returns. Bond prices and yields are subject to change based on market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation, and may not be suitable for all investors. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Those markets are likely to be volatile, and there may be sharp price fluctuations even during periods when prices overall are rising. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.
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