Marching On (towards March)

Equity markets remained volatile, but recorded overall gains for the second consecutive week. Breaking with a pattern of value outperformance that has been in place since November, growth and value shares performed similarly, while mid- and small-caps outpaced large-caps. It was one of the busiest weeks of the fourth-quarter earnings reporting season, with over 100 companies in the S&P 500 Index reporting results.

The earnings reports included several mega-cap names, which drove significant moves in the overall benchmarks. Meta Platforms’ report of a decline in Facebook’s average daily users and guidance for slower revenue growth resulted in a 26% decline in its stock price and wiped a record $232 billion off its market capitalization on Thursday. Conversely, Amazon.com’s report of better-than-expected earnings, driven in part by its Web-services business, helped the indexes jump back Friday morning. Energy shares performed best, building on their significant lead for the year as U.S. oil prices rose above $90 per barrel and major oil exporters agreed to stick to only a modest production increase in the face of high demand.

These prominent earnings releases took some—but not all—of the focus off rising bond yields and interest rates. The week’s heavy calendar of economic releases included data showing that manufacturing prices rose more than expected in January, reflecting modest upside surprises in gauges of factory activity. Measures of services sector activity fell back, probably reflecting the imprint of the Omicron variant, but not as much as expected.

Labor market data appeared nearly contradictory, which is puzzling. On Wednesday, private payroll firm ADP reported that its tally of private sector employment fell by 301,000 in January—the biggest drop since the start of the pandemic. Then, however, Friday morning’s official Labor Department jobs report showed a surprising gain of 467,000 jobs in January—roughly three times consensus expectations—despite the impact of Omicron. Previous months’ gains were revised significantly higher, and average hourly earnings jumped 0.7%, the biggest gain in 10 months.

The unemployment rate ticked higher to 4.0%, but this seemed to reflect an increase in the labor force participation rate, which rose to its highest level (62.2%) since the start of the pandemic. Observers pointed to the end of the increased federal Child Tax Credit and easing coronavirus concerns as encouraging a return to work. Many also cautioned that January’s preliminary payroll number may also be revised significantly given the unique circumstances posed by the pandemic.

The next meeting of the Federal Reserve Board is slated for March, which is when we expect the “rubber to meet the road” on a potential shift in the markets. Our team’s eyes remain focused on the opportunities that lie in any changes ahead. We know that the bumps in the road will be frequent, but we pray to remember the words of Isaiah, as we march forward: “Remember not the former things, nor consider the things of old. Behold, I am doing a new thing; now it springs forth, do you not perceive it? I will make a way in the wilderness and rivers in the desert” (Isaiah 43:18-19).

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