Quiet Seas

Over the past week, the Dow, S&P 500, and Russell 2000 moved fairly lock step, gaining +1.75%, +1.90%, and +2.00%, respectively. NASDAQ, however, rose +2.58% thanks to outsized performance in Meta and Alphabet and a general march higher in semiconductors at the end of the week. Treasury yields continued to flatten (meaning investors can get more return for shorter maturities than later), which led to better technology stocks performance too. Gold and oil rose, while the dollar weakened versus other major currencies. Bitcoin ended the week lower, as the Silvergate Capital crisis deepened and the firm approaches bankruptcy. The bank was facing a run on deposits and the potential for a billion dollar loss following debt securities sales earlier this year that may have impacted bank capital levels.

With lower purchasing power from a weakening dollar, rising commodity prices, and positive job data in mind, investors began repositioning for a less supportive Federal Reserve. Specifically, expectations are now set that interest rates won’t be lowered until at least March 2024. This led to lower long-term rates, stock support, and a very positive Friday to end the week.

Q4 earnings season is drawing to a close, and the number of reporting companies is light. Target reported on Tuesday, beating expectations slightly and confirming that inventory challenges had been resolved. To their benefit, Target has a diversified offering unlike another retailer, Kohls, that missed upon earnings release. Due to a focus on middle-income households and discretionary spending, Kohls told investors about their inventory challenges persisting and margins under pressure. Another company that reported, Salesforce, saw a double-digit return following their earnings release due to beating expectations and increasing shareholder return of capital. To note, Salesforce has also been in the crosshairs of multiple activist investors over the past two months.

This week, eyes and ears will be glued to Fed Chair Jerome Powell, as he testifies before multiple federal committees on the Fed’s operations and outlook. Tuesday, Consumer Credit will be released and give insights to spending patterns of consumers after the holiday shopping frenzies. Finally, the rest of the week will be packed with jobs data, including job openings, initial jobless claims, and earnings.

In geopolitical events, Russia is on the verge of its first victory in Ukraine in months, as Wagner PMC forces are on pace to seize Bakhmut. This comes as Ukrainian forces run low on ammunition. With general elections in Greece weeks away, protestors took to Athens looking for people to be held responsible for the worse train crash in the nation’s history which killed 57. Pentagon officials raised concerns over the use of giant cranes and other port equipment made in China as potential vectors for sabotage or spying. This continues the trend of national security officials raising concern over foreign reliance for key infrastructure needs.

In uncertain times, having quiet weeks like this past one often gives investors anxiety. Many of us wonder if the best or worst is actually behind us. Luckily, Peter instructs us to, “cast all your anxiety on Him because He cares for you,” (Peter 5:7) and we follow suit in our investing philosophy. The brightness in the distance is easiest to see when the water is calm.

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