Fed pivot in 2023?

As expected, the U.S. central bank raised the federal funds rate by 25 basis points on Wednesday, bringing the key interest rate to a range of 4.5% to 4.75%. Though the Fed gave little indication it is nearing the end of the hiking cycle, tech stocks rallied on bets that the terminal rate will be reached soon. Yet the January jobs report shattered expectations on Friday. The U.S. economy indeed created 517,000 jobs last month, blowing away the most optimistic forecasts. There are no signs the hot job market is cooling down even if tech companies have already laid off more than 65,000 employees since January 1, in the wake of mixed quarterly results. 

The Nasdaq Composite jumped 3.31%, notching its fifth consecutive weekly gain. The tech-heavy index is up 14.72% year-to-date. The S&P 500 rose 1.62% week-over-week (up 7.73% YTD). By contrast, the Dow Jones Industrial Average edged down 0.15% (up 2.35% YTD).

In Europe, the MSCI EMU gained 2.07% (up 12.17 YTD). The European Central Bank lifted its three key interest rates by a half-point on Thursday, signaling it would "stay the course" in keeping rates at levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target. The base interest rate on loans was raised to 3%, the deposit rate to 2.5%, and the margin loan rate to 3.25%. President Christine Lagarde said the ECB intended to hike by another 50 basis points in March. 

In the U.K., the FTSE 100 added 1.76% (up 6.04% YTD). At its meeting ending on 1 February 2023, the Bank of England voted by a majority of 7–2 to increase its interest rate by 50 basis points, to 4%. 

In Asia, the Nikkei posted its fourth positive week in a row (+0.46%, +5.42% for the year) while the Shanghai Composite was hovering just above 3,260 points (down 0.04%, up 5.64% YTD). India’s Nifty 50 partially recovered (+1.42%) from the losses suffered in January. Crash in Adani and stocks linked to the conglomerate put Indian shares on course to significantly underperform their Asian peers. The Nifty still lost 1.39% YTD.

Tech reigns supreme despite mixed quarterly earnings from major U.S. firms  

Once again, the surge in growth corners of the market appeared to come at the expense of value sectors. 

Energy, utilities and health care stocks weighed on upside momentum. The energy sector took a nosedive (down 5.94% over the week). WTI crude oil prices slumped (-7.89%) as U.S. industrial-linked factory orders dipped. Natural Gas prices sank amid reduced demand due to above-normal weather conditions. Utilities fell 1.49% while health care stocks limped (down 0.10%) to a six-week losing streak. Those three S&P sectors are the worst performers this year along with consumer staples.

In contrast, appetite for cyclical sectors continued to grow. Communication services led the pack (+5.28%) with Meta stocks (META) up 22.93% week-over-week (+55% YTD). The company reported fourth-quarter revenue that topped estimates while announcing a $40 billion share buyback program. Information technology fared well (+3.75% for the week) in the wake of Apple (APPL, up 5.87%) and Microsoft stocks (MSFT, up 4.11%). Consumer discretionary took third place on the podium (up 2.25%), boosted by TESLA (TSLA, +6.79% for the week, +54.23% YTD). Elon Musk said the EV manufacturer could sell two million cars this year if there are no external interruptions.