Week in Review: January 27, 2023


Week in Review: January 27, 2023

Growth for 2022 ended on a high note, but with inflation still too high, all eyes are on the Fed next week 


Market summary

U.S. equities were higher this week, after ending lower the week prior. The S&P 500 ended at the highest level since early December, increasing above its 200-day moving average. All sectors, except for healthcare and utilities, ended the week higher. Treasuries ended the week weaker, with notable weakness in the belly of the curve. The dollar index ended the week slightly stronger. 

This week

The economy grew strongly in the last quarter of 2022, but most of the growth occurred at the beginning of the fourth quarter (Q4), and the core of the economy was weak, meaning 2023 growth will likely be slower than that of 2022. The preliminary gross domestic product (GDP) reading rose by a stronger-than-expected 2.9% in Q4 2022, although the underlying components paint a bleaker picture (see Figure 1). The increase was driven by a rebound in inventory accumulation, an increase in spending on nondefense and a larger fall in imports than exports. The rest of the report shows that growth slowed throughout the quarter as high interest rates weakened demand. As high interest rates continue to lower consumer demand, we expect economic growth will slow in 2023. 

The underlying GDP data reflects the higher interest rates weighing heavily on the consumer, as consumption growth slowed to 2.3% in Q4. Retail sales data shows that while consumption increased overall in the quarter, real consumption slightly slowed in November and December due to high rates. Final sales to private domestic purchases (a smoother measure of underlying momentum that strips out GDP’s volatile components) only increased by 0.2% annualized in Q4, following a gradual slowdown in 2022. Durable goods consumption only slightly rebounded, and residential and business equipment investment fell, as demand was lower than businesses expected after they increased inventories to offset supply shortages. Interest rate–sensitive parts of the economy remained under stress, with residential investment declining again. This leads us to expect a further slowdown in growth in 2023, as high interest rates slow demand. 

The personal consumption expenditures (PCE) deflator, which measures the prices consumers pay for goods and services and is also the preferred measure of inflation of the Federal Reserve (the Fed), increased by 0.1% month over month (MoM) in December, while the core PCE (excluding food and energy) increased by 0.3% MoM. Looking at the breakdown of expenditures, goods disinflation accelerated, coming in at only 4.6% year over year (YoY) in December as compared to almost 10% YoY in July. The stickier issue is the services side of inflation, which hasn’t peaked yet. The PCE services deflator rose by 0.5% MoM, leaving it steady at 5.2% YoY (see Figure 2). The decline in goods inflation is welcome, as it brings inflation closer to the Fed’s 2% goal, but with services inflation still sticky, it highlights that the Fed has more work to do. 

We don’t expect this week’s economic data to alter the Fed’s plans for further rate hikes. At next week’s Federal Open Market Committee meeting, we expect the Fed will hike rates by 25 basis points and keep rates higher for longer. The magnitude of the rate hikes going forward will remain “data dependent,” as the Fed needs to see convincing evidence that inflation is meaningfully declining before stopping rate hikes.

Going Forward

Equity and bond market volatility will remain elevated until there’s a meaningful and consistent decrease in inflation, and the duration of higher rates is more certain as markets become comfortable with a “data-dependent” Fed that’s now focused on the cumulative effects of rate hikes. We remain defensive in our positioning, and we’d look for opportunities to upgrade portfolios during market weakness. 

Within equities, we continue to favor U.S. Large Cap exposure, since China’s evolving COVID policies continue to weigh on manufacturing and growth. We’ve recently become more constructive on Developed International equities, as the energy recession wasn’t as severe as anticipated. In the United States, large cap equities provide an attractive blend of quality, growth and yield, albeit at higher valuations and as earnings expectations continue to deteriorate. For fixed income, we recommend a barbell positioning, with an overweight to short- and longer-dated bonds. We remain defensive in our credit positioning, with at benchmark duration, and higher in credit quality. We expect credit spreads to leak wider to account for recession risks. 



  • The Conference Board’s Consumer Confidence Survey is expected to decline to 108 in January and will be released on Tuesday. 
  • At the Federal Open Market Committee meeting on Tuesday and Wednesday, the Fed will provide details about upcoming changes in monetary policy. 
  • The Institute for Supply Management Manufacturing index is expected to decline to 48.1 in January and will be released on Wednesday. 
  • Nonfarm payrolls are expected to add 185,000 jobs in January and will be released on Friday. 
  • The Institute of Supply Management Services Project Management Institute is expected to increase to 50.2 and will be released on Friday. 

Figure 1: U.S. quarterly GDP (percentage)

Sources: Bureau of Economic Analysis, Bloomberg, First Republic Investment Management, as of January 27, 2023.

Figure 2: PCE inflation (percentage)

Sources: Bureau of Economic Analysis, Bloomberg, First Republic Investment Management, as of January 27, 2023.


Market Returns (USD) as of 1/26/2023





Global Equities

MSCI All Country World

3.3% 7.2% 7.2% -5.9%

S&P 500

4.2% 5.8% 5.8% -5.1%

Dow Jones Industrial Average

2.7% 2.5% 2.5% 1.5%


6.1% 10.0% 10.0% -14.3%

Russell 2000

3.6% 8.1% 8.1% -2.3%

Russell 1000 Equal Weighted

3.7% 7.3% 7.3% 0.6%


1.7% 8.3% 8.3% -3.2%

MSCI Emerging Markets

2.4% 10.1% 10.1% -10.6%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.6% 2.0% 2.0% -2.1%

Bloomberg Barclays Intermediate Government/Credit

0.3% 2.1% 2.1% -5.0%

Bloomberg Barclays High Yield Bond

-0.1% 3.7% 3.7% -6.9%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

4060.43 3898.85 3839.5 4349.93

Dow Jones Industrial Average


33949.41 33044.56 33147.25 34168.09

10-Year U.S. Treasury Yield (Constant Maturity)

3.49% 3.39% 3.88% 1.84%

Gold ($/oz)

$1,929.45 $1,932.24 $1,824.56 $1,819.77

Crude Oil ($/barrel)

$81.01 $80.61 $80.26 $87.35

U.S. Dollar / Euro ($/)

1.09 1.08 1.07 1.13

U.S Dollar / British Pound ($/£)

1.24 1.24 1.2 1.35

Japanese Yen / U.S. Dollar (¥/$)

130.46 128.43 131.95 114.33

Bitcoin Futures ($/XBT)

$23,075.00 $20,939.64 $16,498.08 $37,060.00