In Markets "In a Nutshell"

Markets “In a Nutshell” for February 27, 2023

Investment Week at a Glance

Stocks finished lower for the week.  The Dow Jones Industrial Average fell 3.00%, the S&P 500 was down 2.70%, and the NASDAQ fell 3.30%. Foreign stocks (MSCI EAFE) were also down, falling 3.30%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 3.95%.  (Data source: Wall Street Journal)

Yields Rise,  Market Falls

With inflation data not coming in as the market expected, there were some renewed worries about inflation and the Fed raising rates. Inflation had been coming down in line with estimates and, for the first time, we got a hotter reading than expected causing rates to rise again. This is due to new market expectations that the Fed will raise rates more than previously expected. The 10-year treasury yield has moved from 3.3% to 3.9% in just the last 3 weeks. This is the same story we saw last year as inflation soared and rates followed along causing the market to decline throughout 2022. The Dow Jones has now given up all gains for the year and is negative for 2023 but tech continues to outperform as the NASDAQ remains up over 8% for the year. With the Fed not meeting until the end of March, a lot will depend on the February inflation data as it could be the deciding factor in where rates go from here.

Market Volatility Here to Stay?

The market has been very volatile to start the year as we moved up nearly 10% on the S&P 500 in one month to start the year and have since pulled back over 5% from the high in early February just a few weeks ago. These spikes and declines will most likely continue as the market tries to adjust to the new Fed expectations and price those new rates into the market. We could see volatility in the market go away once the Fed pauses rates as they will be very unlikely to pause rates and then begin rates hikes once again. Another factor to market volatility is the condition of the economy as many see a recession as likely in 2023. If economic data worsens and we see unemployment rise and GDP fall this will be another drag on the market as companies will see earnings shrink.



How much do S&P 500 earnings decline in the average recession? (Scroll Down for Answer)

  1.     7%
  2.     10%
  3.     13%
  4.     16%
































Answer below.



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4)  16%.  On average, the earnings for the S&P 500 index fall 16% when we have a recession, the S&P 500 earnings for Q4 of 2022 were down nearly 5% year over year for Q4.