Week of February 28, 2023

Inflation news and anticipation about the Federal Reserve’s (Fed) reaction sent Wall Street reeling last week with the Dow finishing lower by 3%, its fourth down week in a row.  The S&P 500 lost 2.7% and the NASDAQ Composite fell 3.3% for the week.

Stocks sank last Friday and Treasury yields jumped following a bigger-than-expected increase in January’s reading for personal consumption expenditures (CPE), the Fed’s preferred inflation gauge. Wall Street was expecting the CPE to increase by 0.5%, but the CPE was reported at 0.6% and it became clear that Wall Street doesn’t like surprises. To put January’s CPE in context, December’s CPE reading came in at 0.2%.

In the week ahead, investors will be looking for clues about how inflation is affecting consumers and businesses amid a handful of economic data reports and corporate earnings.  Durable goods orders are due out Monday (2/27) morning.  Consumer confidence and the ISM manufacturing survey are also on deck in the coming week.

As for the investment markets, Jeffrey Roach, chief economist at LPL Financial, pointed out that underlying conditions are still turbulent. “Markets will likely stay choppy during these months where higher rates have yet to materially cool consumer spending.” In other words, the economy and the markets can’t for the time being remain strong at the same time – something’s got to give.