AMERIPRISE FINANCIAL, INC.
The S&P 500® index enjoyed its first positive week of the new year, and it took a powerful rally in its largest constituent on Friday to make it happen. Apple surged by 7 percent on Friday after reporting stronger than expected earnings, leading to a 2.4 percent overall gain in the index. For the week, the index gained 0.8 percent, but for the year-to-date it remains lower by 7.0 percent. Apple has an even larger weighting in the Nasdaq Composite index, which soared by 3.1 percent on Friday, also resulting in its first positive week of the year, but only by the slimmest of margins, up 0.01 percent, leaving it lower on the year by 12 percent.
Overall, fourth quarter earnings season is off to a good start. Roughly one-third of S&P 500 companies have reported results thus far, and 77 percent have reported better than expected results, according to Factset. Earnings growth for the quarter is now on track to total 24.3 percent, up from 21.4 percent at quarter end.
Markets Price in Five Rate Hikes in 2022; Credit Spreads Continued to Widen
But the focus last week was on the Fed. In his post meeting press conference, Chair Powell made it clear that the Fed is likely to begin raising rates in March, and left open the possibility that subsequent rate hikes would follow more aggressively than assumed. As a result, markets are now pricing in five quarter-point rate hikes and a year-end Fed funds rate of 1.25-1.50 percent. And while he placed the focus on interest rate policy, he also indicated that discussions would continue regarding the timing of starting its balance sheet runoff. In response, the yield on the two-year Treasury note ended the week at 1.16 percent, and in early this week is trading higher at 1.20 percent, up sharply from its 0.99 percent close the previous week. In contrast, the ten-year note was virtually unchanged on the week, rising just one basis point to 1.77 percent, and is trading at 1.78 percent early this week. The 2-10 year yield curve has now flattened to just 58 basis points.
Credit spreads continued to widen as well. The ICE Bank of America High Yield spread widened 32 basis points to 361 last week. It began the year at 310 basis points. The BBB spread move was more muted, climbing just seven basis points to 133, after beginning the year at 121. These moves suggest that the bond market is getting the message that conditions are tightening, but not yet to a point of concern, and that the Fed seems to be quickly catching up from impressions that it had fallen behind the curve relative to inflationary pressures.
Evidence Shows Omicron Has Slowed Economic Activity; Unemployment is Expected to Show Slow Gains
There was more evidence last week that the Omicron variant has slowed economic activity. The composite flash PMI fell sharply to 50.8 in January from 57 in December, with most of the slowdown occurring in the service sector. Durable goods orders in December also declined more than expected, as did the University of Michigan's measure of consumer sentiment, and the Conference Board's index of consumer confidence. Pending homes sales also slumped. And both the headline and core PCE deflators edged higher. The news last week wasn't all bad, however. Fourth quarter GDP easily exceeded expectations, rising 6.9 percent compared to the anticipated rise of 5.5 percent, and for the second straight month new home sales also easily beat expectations. In addition, the seven-day moving average of new Covid infections continued to decline, and has now fallen by 36 percent from its mid-January peak.
This week's calendar is headlined by the January jobs report. It is expected to show job creation of just 150,000, which would be the slowest in thirteen months. The unemployment rate is forecast to remain at 3.9 percent. And the ISM PMIs are expected to decline modestly. This is also a big week for earnings, with one-fifth of S&P 500 companies scheduled to report, including Alphabet, Meta Platforms, and Amazon. Investors are also watching rising tensions between Russia and NATO regarding a possible invasion of Ukraine. Brent crude oil closed above $90 a barrel last week for the first time since 2014.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Investing involves risk including the risk of loss of principal.
Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.
The products of technology companies may be subject to severe competition and rapid obsolescence, and their stocks may be subject to greater price fluctuations.
A rise in interest rates may result in a price decline of fixed-income instruments held by the fund, negatively impacting its performance and NAV. Falling rates may result in the fund investing in lower yielding debt instruments, lowering the fund's income and yield. These risks may be heightened for longer maturity and duration securities.
A 10-year Treasury note is a debt obligation issued by the United States government that matures in 10 years.
A 2-year Treasury note is a debt obligation issued by the United States government that matures in 2 years.
The personal consumption expenditure (PCE) measures of the prices that people living in the United States pay for goods and services. The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.
The ICE BofA High Yield Index uses an index of bonds that are below investment grade (those rated BB or below).This data represents the ICE BofA US High Yield Index value, which tracks the performance of US dollar denominated below investment grade rated corporate debt publicly issued in the US domestic market.
The flash reading of PMI is an estimate of the Manufacturing Purchasing Managers' Index (PMI) for a country, based on about 85% to 90% of the total PMI survey responses each month. Its purpose is to provide an accurate advance indication of the final PMI data.
The ISM manufacturing index, also known as the purchasing managers' index (PMI) is an estimate of manufacturing for a country, based on about 85% to 90% of total Purchasing Managers' Index (PMI) survey responses each month. It is considered to be a key indicator of the state of the U.S. economy.
The Consumer Confidence Index (CCI) is a survey, administered by The Conference Board, that measures how optimistic or pessimistic consumers are regarding their expected financial situation.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
Definitions of individual indices and sectors mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
Overall, fourth quarter earnings season is off to a good start. Roughly one-third of S&P 500 companies have reported results thus far, and 77 percent have reported better than expected results, according to Factset. Earnings growth for the quarter is now on track to total 24.3 percent, up from 21.4 percent at quarter end.
Markets Price in Five Rate Hikes in 2022; Credit Spreads Continued to Widen
But the focus last week was on the Fed. In his post meeting press conference, Chair Powell made it clear that the Fed is likely to begin raising rates in March, and left open the possibility that subsequent rate hikes would follow more aggressively than assumed. As a result, markets are now pricing in five quarter-point rate hikes and a year-end Fed funds rate of 1.25-1.50 percent. And while he placed the focus on interest rate policy, he also indicated that discussions would continue regarding the timing of starting its balance sheet runoff. In response, the yield on the two-year Treasury note ended the week at 1.16 percent, and in early this week is trading higher at 1.20 percent, up sharply from its 0.99 percent close the previous week. In contrast, the ten-year note was virtually unchanged on the week, rising just one basis point to 1.77 percent, and is trading at 1.78 percent early this week. The 2-10 year yield curve has now flattened to just 58 basis points.
Credit spreads continued to widen as well. The ICE Bank of America High Yield spread widened 32 basis points to 361 last week. It began the year at 310 basis points. The BBB spread move was more muted, climbing just seven basis points to 133, after beginning the year at 121. These moves suggest that the bond market is getting the message that conditions are tightening, but not yet to a point of concern, and that the Fed seems to be quickly catching up from impressions that it had fallen behind the curve relative to inflationary pressures.
Evidence Shows Omicron Has Slowed Economic Activity; Unemployment is Expected to Show Slow Gains
There was more evidence last week that the Omicron variant has slowed economic activity. The composite flash PMI fell sharply to 50.8 in January from 57 in December, with most of the slowdown occurring in the service sector. Durable goods orders in December also declined more than expected, as did the University of Michigan's measure of consumer sentiment, and the Conference Board's index of consumer confidence. Pending homes sales also slumped. And both the headline and core PCE deflators edged higher. The news last week wasn't all bad, however. Fourth quarter GDP easily exceeded expectations, rising 6.9 percent compared to the anticipated rise of 5.5 percent, and for the second straight month new home sales also easily beat expectations. In addition, the seven-day moving average of new Covid infections continued to decline, and has now fallen by 36 percent from its mid-January peak.
This week's calendar is headlined by the January jobs report. It is expected to show job creation of just 150,000, which would be the slowest in thirteen months. The unemployment rate is forecast to remain at 3.9 percent. And the ISM PMIs are expected to decline modestly. This is also a big week for earnings, with one-fifth of S&P 500 companies scheduled to report, including Alphabet, Meta Platforms, and Amazon. Investors are also watching rising tensions between Russia and NATO regarding a possible invasion of Ukraine. Brent crude oil closed above $90 a barrel last week for the first time since 2014.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Investing involves risk including the risk of loss of principal.
Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.
The products of technology companies may be subject to severe competition and rapid obsolescence, and their stocks may be subject to greater price fluctuations.
A rise in interest rates may result in a price decline of fixed-income instruments held by the fund, negatively impacting its performance and NAV. Falling rates may result in the fund investing in lower yielding debt instruments, lowering the fund's income and yield. These risks may be heightened for longer maturity and duration securities.
A 10-year Treasury note is a debt obligation issued by the United States government that matures in 10 years.
A 2-year Treasury note is a debt obligation issued by the United States government that matures in 2 years.
The personal consumption expenditure (PCE) measures of the prices that people living in the United States pay for goods and services. The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.
The ICE BofA High Yield Index uses an index of bonds that are below investment grade (those rated BB or below).This data represents the ICE BofA US High Yield Index value, which tracks the performance of US dollar denominated below investment grade rated corporate debt publicly issued in the US domestic market.
The flash reading of PMI is an estimate of the Manufacturing Purchasing Managers' Index (PMI) for a country, based on about 85% to 90% of the total PMI survey responses each month. Its purpose is to provide an accurate advance indication of the final PMI data.
The ISM manufacturing index, also known as the purchasing managers' index (PMI) is an estimate of manufacturing for a country, based on about 85% to 90% of total Purchasing Managers' Index (PMI) survey responses each month. It is considered to be a key indicator of the state of the U.S. economy.
The Consumer Confidence Index (CCI) is a survey, administered by The Conference Board, that measures how optimistic or pessimistic consumers are regarding their expected financial situation.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
Definitions of individual indices and sectors mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
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Ameriprise Financial Inc. published this content on 31 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 January 2022 21:24:33 UTC.
