3 top stories from this week
The stock market’s early-year rally continued to grind to a halt this week, with the Dow recording its third straight losing week while the S&P 500 capped two straight losing weeks for the first time this year.
Beneath the surface, retail investors continue to buy with enthusiasm, as data from VandaTrack published Thursday showed that about $1.5 billion per day is entering the market from this group.
And while individual stocks remain volatile with earnings season continuing to offer fireworks — see DraftKings ( DKNG ) and Shopify ( SHOP ), which rose 13% and fell 15%, respectively, following quarterly results this week — the big market stories continued to be dominated by one theme: US economy.
A no-landing scenario
The US economy remains more resilient than most experts expected as a cumulative 4.5% increase in the Federal Reserve’s benchmark interest rate since March 2022 has yet to stifle the labor market, consumer spending or overall growth.
This week, retail sales data showed consumers held back little to start the year, with sales rising 3% in January, the biggest monthly increase since March 2021.
Wednesday’s data came just a day after inflation data from January showed price rises were stronger than expected to start the year, with the headline consumer price index (CPI) rising 0.5% from last month and 6.4% from last year .
“Core” CPI, which strips out the more volatile costs of food and gas, rose 0.4% from last month and 5.6% from last year.
Taken together, these reports show that both inflationary pressure is decreasing less quickly than expected and that consumers seem less sensitive to this pressure.
In 2022, the conversation about the US economy broke into two basic camps – hard landing and soft landing.
A hard landing will cause the Fed’s rate hikes to send the economy into recession with a significant weakening of the labor market. A soft landing would cause interest rate hikes to slow inflation without crashing the economy into a recession.
But now a third way has emerged among the financial comments: a “no landing”.
As Yahoo Finance’s Alexandra Semenova described Friday, “no landing” means inflation remains high but the economy continues to grow.
Some economists, as Alexandra noted, believe that this scenario does not make sense. In this view, the economy is cyclical and over time growth will rise and fall. The economy not “landing” this year—ie slowing significantly or falling into recession—doesn’t mean it won’t happen. 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” is next for the US economy.
Mixed data continues
Retail sales and inflation data were the stars of the economic calendar last week.
But not all data pointed to the relatively benign picture of “consumers shaking off higher prices” reflected in this report.
A reading on the manufacturing sector from the Federal Reserve Bank of Philadelphia on Thursday morning showed that pressures are persistent and increasing in the manufacturing sector.
The Philly Fed’s reading of general business conditions fell to its lowest level since May 2020.
Gurleen Chadha, US economist at Oxford Economics, said in a note published on Thursday that this report “failed to reassure” after a similarly weak reading from the New York Fed’s own manufacturing report published earlier this month.
“Industrial weakness has been persistent amid a slowdown in the global economy, earlier strengthening of the US dollar and higher interest rates stifling commodity demand,” Chadha wrote. “With concerns burning that the economy will slip into a mild recession this year, the worst is likely ahead for the industry.”
On Friday morning, the oft-overlooked Leading Economic Index from The Conference Board recorded a 10th consecutive monthly decline in January.
“Reasonable minds can disagree on whether the economy is headed for recession or a soft landing, especially after a recent run of strong data,” Wells Fargo economists Tim Quinlan and Shannon Seary said. “However, the leading index is not staggering.”
As has been the case for a few months now – and perhaps to a nerve-wracking degree among those closely following the US economy’s every move – there is still something for everyone in the latest batch of data.
Bitcoin $25,000
Last week, we noted that fundamental pressures in the crypto space were building, with companies scrapping back plans and regulatory actions picking up.
This week, the regulatory actions continued, most notably when the SEC charged Terraform Labs and its founder, Do Kwon, with securities fraud.
Although it feels like a lifetime ago in the crypto space, the collapse of the Terra blockchain ecosystem and its algorithmically backed stablecoin, Terra USD, started what ended up being a wave of crypto bankruptcy filings in 2022.
Against this backdrop, however, bitcoin’s (BTC-USD) amazing start continued until 2023 only.
And on Thursday, bitcoin crossed $25,000 for the first time since August 2022.
So far this year, bitcoin is up about 50%.
In a note to clients on Friday, Bank of America Global Research strategist Michael Hartnett called the move in the world’s largest cryptocurrency “feverish.”
However one chooses to characterize the move, bitcoin seems determined to chart a course regardless of what remains a largely discouraging news flow related to the crypto industry. Perhaps there is nothing more bullish than that.
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