Week 08 in Brief
U.S. stocks fell sharply Friday, wrapping up their worst week of 2023 after the Federal Reserve’s preferred inflation gauge showed a stronger-than-expected increase in prices last month. The core personal consumption expenditures price index, the Fed’s preferred measure of inflation, rose 0.6% in January and 4.7% from the prior year, coming in above economists’ expectations.
How did the Major Indices Perform?
- The Dow Jones Industrial Average fell 336.99 points or 1.02%,
- The S&P 500 lost 42.28 points or 1.05%,
- the Nasdaq Composite dropped 195.46 points or 1.69%.
For the Week:
- The Dow fell almost 3.0%,
- The S&P 500 was down 2.7%,
- The Nasdaq closed 3.3% lower.
What Drove the U.S. Market?
- Warren Buffett pushed back on buyback critics, saying they are “either an economic illiterate or a silver-tongued demagogue.”
- The 92-year-old investor released Berkshire Hathaway’s much-anticipated letter Saturday. Buffett believes buybacks are beneficial to shareholders as they provide a lift to per-share intrinsic value.
- Twelve Democratic-led states have sued the Food and Drug Administration to challenge certain federal restrictions imposed on the distribution of the abortion pill mifepristone, saying those limits are not supported by evidence.
- U.S. Treasury Secretary Janet Yellen told Reuters on Saturday that new U.S. data showing inflation jumped unexpectedly in January signals that the fight against inflation “is not a straight line” and more work is needed. She said sometimes recessions are necessary to bring inflation down, such as in the 1970s when there was a strong wage-price spiral. “But I believe that is not the situation now,” Yellen explained.
- Telecom equipment maker Ericsson will lay off 8,500 employees globally as part of its plan to cut costs, a memo sent to employees and seen by Reuters said. While technology companies such as Microsoft, Meta, and Alphabet have laid off thousands of employees citing economic conditions, Ericsson’s move would be the largest layoff to hit the telecoms industry.
How Did the European Markets Perform?
- European markets moved from gains to losses Friday, as investors chewed over data releases and more company earnings.
- The pan-European Stoxx 600 index closed down 1%. Travel and leisure stocks led losses, falling 3%, while mining stocks slipped 2.8%, as all sectors and major bourses ended the day in the red.
- Figures published in the morning showed the German economy contracted by 0.4% in the fourth quarter last year, with a previous flash estimate showing a 0.2% decline.
- In the corporate sector, BASF (ETR: BASFN) stock fell 3.8% after Europe’s biggest chemical firm announced a 12% drop in earnings in 2022. It also said it would be ending a share buyback program ahead of time and planned to cut 2,600 positions, about 2% of its global workforce, to try and cut costs.
How did Asian Markets Perform
- Asia-Pacific markets closed mixed on Friday, with Chinese and Hong Kong indexes falling but Japan’s Nikkei 225 climbing.
- The Nasdaq Golden Dragon China index has shed 8.5% so far this month, on track for its first decline in four months after surging about 70% from November to January.
- China’s blue-chip CSI300 Index closed 1% lower during Asia hours, while shares of aerospace defense companies jumped.
- Japan’s Nikkei share index closed up 1.1%, while its five-year government bond yield eased to 0.235%.
- Hong Kong’s Hang Seng Index dropped 1.3%
Bonds and Commodities
- Oil prices rose Friday as the prospect of reduced supply from Russia into the global market offset rising U.S. inventories.
- Moscow plans to cut up to 25% of oil exports from its western ports in March, according to a Reuters report, which is more than the 500,000 barrel per day supply cut announced earlier.
- This news has overshadowed the announcement of another increase in U.S. oil stocks, with data from the Energy Information Administration showing inventories grew for a ninth consecutive week to their highest level since May 2021.
- U.S. crude futures traded 1.3% higher at $76.39 a barrel, while the Brent contract rose 1.3% to $83.29. Both contracts were trading down less than 0.5% each for the week, having clawed back earlier heavy losses.
- West Texas Intermediate crude oil climbed 1.5% to $76.55 per barrel. Brent crude, oil’s international benchmark, rose 1.3% to $83.28.
- Gold prices dropped to their lowest in eight weeks on Friday, pushed down by a stronger dollar and bond yields as the market braced for more interest rate hikes by the U.S. Federal Reserve in the coming months.
- The 10-year Treasury yield gained seven basis points to 3.95%.
- Against the yen, the dollar hit a two-month high and was last up 1.3% at 136.41 yen.
- The U.S. currency also rose to its strongest level in seven weeks versus the Swiss franc following the data.
- The dollar last traded at 0.9406 francs, up 0.7%.
- The euro was last down 0.39% against the greenback at $1.0549, after falling to a seven-week low of $1.0536 earlier in the session.
- Sterling softened 0.60% against the dollar at $1.1951
- Rupee ended two paise lower from its previous close at 82.75 vs the US dollar on Friday.
- Bitcoin fell 0.05% to $24,130.33.
Next week, we’ll get more earnings reports from major retailers, with Target, Lowe’s, and Costco scheduled to report. Other companies reporting next week include Salesforce, Zoom Video Communications, Broadcom, Hewlett Packard, Dell Technologies, TD Bank, Best Buy, and AutoZone, among others. Data on January pending home sales will arrive on Monday, followed by the latest updates on national home prices on Tuesday.
Purchasing Managers’ Index (PMI) survey readings from S&P Global and the Institute for Supply Management (ISM) will provide the latest information on business conditions in the U.S. The U.S. Supreme Court will also hear two cases that could determine the fate of President Biden’s student loan forgiveness plan.