While markets retreat, the shift in rate expectations show signs the end of rate hikes is near
- Strong economic data pushed market expectations to 0.5% more rate hikes by year end. While perhaps overdone, this speaks to the end is near on rising rates.
- With 94% of S&P 500 companies reported, fourth quarter 2022 earnings declined -4.8% leaving investors wondering if earnings are the next shoe to drop. While disappointments may produce volatility and opportunity, markets tend to bottom before earnings and waiting for the all-clear horn may be too late.
Warm winter weather seems to have been fueled by hot January economic data reported in February. Employment, retail sales, manufacturing, and inflation all showed acceleration. Markets fell in sympathy. Why? The irony of positive economic surprises is markets interpret that as the Fed has more rate hikes ahead. We’ll unpack more of the details below.
For the month markets broadly were down with across most major asset classes. Domestic markets, particularly growth, held up based on the rally in semi-conductors and China pulled down ex-U.S. markets following its extraordinary rally from October of last year. Malaise around U.S. – China relations and an attempt to gauge the degree to which Chinese consumers will emerge from COVID lockdowns has some investors taking profits.