Here’s The Asset Guidance Group Outlook for the Week Ahead… 

As a new year begins, investors and policymakers are still at odds on several key questions. What level will interest rates peak at? How persistent will inflation be? And lastly, will the U.S. experience a recession?

Last year’s interest rate shock was brutal for growth stocks, bonds, and the housing market, but more pain could filter into other areas like corporate earnings, private equity, and commercial real estate. This week, after today’s observed New Year’s Day holiday, a busy economic calendar awaits, highlighted by the U.S. jobs data. The Fed is waiting for that elusive labor market slowdown, with December payrolls expected to grow at a still strong 200K. Minutes from the last FOMC meeting will be closely scrutinized on Wednesday given the recent lack of commentary from committee members. U.S. ISM PMIs will also be released, with manufacturing on Wednesday followed by services on Friday. Overseas, December’s flash estimate for Eurozone CPI is expected to moderate, raising hopes that inflation has peaked, although the central bank remains unconvinced. Finally, China’s private sector PMIs will follow the government’s official results from the weekend as the country battles a surge in Covid infections. [1]

Recapping Last Week

A challenging year ended with a whimper as U.S. equities skidded to a fourth straight
weekly loss. The S&P500 Index slipped 0.15% to finish 2022 with a loss of 19.4%, while
the Nasdaq Composite fell 0.3% and posted its worst yearly performance since 2008
at -33%. The Russell 2000 edged fractionally higher last week but lost 21.5% for the
year. Energy was the only S&P500 sector to end the year positive, soaring an
impressive 58% in 2022. Communications, technology, real estate, and consumer
discretionary all plunged nearly 30% or more YoY, while the defensive sectors
(consumer staples, healthcare, and utilities) held their ground, each losing less than
4% YoY. Crude oil made quite the round trip in 2022, surging to over $130 per barrel
after Russia invaded Ukraine before falling back below $80 as the global economic
outlook dimmed. Most other commodities, including gold and copper, followed a
similar pattern as inflation and interest rates dominated the headlines. The U.S. 10-
year Treasury yield spiked from 1.51% to 4.33% before settling at 3.88%, as the
Federal Reserve implemented the quickest tightening campaign in history to fight
the highest inflation in 40 years. In economic news, the U.S. trade deficit narrowed in
November as imports sank, while wholesale inventories increased to a record
$933.6B. Holiday retail sales rose 7.6% YoY, above forecasts but slower than last
year’s 8.5% increase. The housing market’s struggles continued, with pending home
sales slumping another 4% in November and home prices sliding 0.5% in October.
Applications for U.S. unemployment benefits rose only slightly last week, but
continuing claims reached a 10-month high, suggesting some difficulty in finding
new jobs. Finally, regional manufacturing surveys from Richmond and Chicago
showed modest improvements in December but difficult business conditions likely lie
ahead. Internationally, initial optimism over China’s reopening faded as a number of
countries adopted travel restrictions amid the latest Covid outbreak in the world’s
second largest economy. In Japan, central bank policymakers showed increased
attention to inflationary pressures at their latest meeting, but BOJ Governor Kuroda
downplayed any chance of a near-term change in its ultra-loose program. The BOJ
Core PCI accelerated for a ninth straight month in November, rising to 2.9% YoY. [2]

Weekly Macro Update Image

The Institute for Supply Management Chicago reported production plunging by 9.2 points due to low order levels. Weak demand conditions saw 46% of firms experience falling orders. This all caused the Chicago Business Barometer to fall to its lowest reading since the 2008/09 Global Financial Crisis, excluding the 2020 Pandemic shock.

Click Here to View Chart (Chart from ISM; Zacks Investment Research). [3]

Chart of the Week: 

Looking at the performance of major indexes across different asset classes in 2022, a few things stand out. In a year characterized by high inflation and sharply rising interest rates, only the U.S. dollar and oil finished in positive  territory, while gold was flat. Stocks and bonds fell together for only the fourth time since 1929, and for the first time  since 1969.

Higher rates punished growth-oriented assets the most, with Bitcoin and the Nasdaq Composite Index the biggest losers. With the Fed determined to stamp out inflation, what lies ahead for 2023? Click here to view chart. [4]

Sources: [1] [2] tdainstitutional.com; [6] Asset Guidance Group analysis, www.stockcharts.com; All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat,0020Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Chart from Indeed’s Hiring Lab; [3] chart from cnbc.com; [4] tdainstitutional.com; [5] grouped and reported by kwanti.com, imported from TDAmeritrade Institutional, Risk categories as scored by Grabbel-Lytton test and grouped by like risk tolerance levels; NOTE: individual account performance grouped solely by model classification type in terms of risk tolerance. Individual portfolios include equivalent equities exposures via like models but many may hold additional investments like structured notes, fixed income investments such as CDs, bonds, and other invidivually preferred securities. 1-Week risk score denotes overall performance of all AGG client portfolios grouped together by like-risk tolerance scores not by identical investment allocations; [6] SIMON portal, FIGmarketing.com.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.