The stock market’s early-year rally continued to stall this week, with the Dow logging its third-straight losing week while the S&P 500 capped off two-straight losing weeks for the first time this year.
Underneath the surface, retail investors continue to buy with enthusiasm, as data from VandaTrack published Thursday showed some $1.5 billion per day is coming into the market from this group.
And while single-stock action remains volatile with earnings season continuing to offer fireworks — see DraftKings (DKNG) and Shopify (SHOP), which rose 13% and fell 15%, respectively, after quarterly results this week — the big market storylines continued to be dominated by one topic: the U.S. economy.
A ‘no landing’ scenario
The U.S. economy remains more resilient than most experts expected as a cumulative 4.5% increase the Federal Reserve’s benchmark interest rate since March 2022 hasn’t yet choked off the labor market, consumer spending, or overall growth.
This week, data on retail sales showed consumers did little holding back to start the year, with sales rising 3% in January, the biggest monthly increase since March 2021.
Wednesday’s data came just a day after January inflation data showed price increases were firmer than expected to start the year, with the headline Consumer Price Index (CPI) rising 0.5% over last month and 6.4% over last year.
“Core” CPI, which strips out the more volatile costs of food and gas, rose 0.4% over last month and 5.6% over last year.
Taken together, these reports show both inflation pressures fading less quickly than expected and consumers appearing less sensitive to these pressures.
In 2022, the conversation about the U.S. economy broke into two basic camps — hard landing and soft landing.
A hard landing would see the Fed’s rate hikes send the economy into recession with the labor market weakening considerably. A soft landing would see rate hikes slow inflation without crashing the economy into a downturn.
But now, a third way has emerged among the economic commentariat: a “no landing.”
As Yahoo Finance’s Alexandra Semenova detailed on Friday, a “no landing” means inflation remains elevated but the economy keeps growing.
Some economists, as Alexandra noted, think this scenario makes no sense. In this view, the economy is cyclical and over time growth will rise and fall. The economy not “landing” this year — i.e. slowing considerably or falling into recession — doesn’t mean it won’t happen. It just means it hasn’t happened yet.
As earnings season cools down and the next Fed policy meeting in mid-March fast approaches, expect there to only be more conversation about what kind of “landing” is next for the U.S. economy.
Mixed data continues
Retail sales and inflation data were the stars of the economic calendar last week.
But not all data pointed the relatively benign picture of “consumers shake off higher prices” reflected in this couplet of reports.
A reading on the manufacturing sector from the Federal Reserve Bank of Philadelphia out Thursday morning showed pressures are persistent, and building, in the manufacturing sector.
The Philly Fed’s read on general business conditions fell to its lowest level since May 2020.
Gurleen Chadha, U.S. economist at Oxford Economics, said in a note published Thursday this report “failed to reassure” after a similarly weak reading from the New York Fed’s own manufacturing report out earlier this month.
“Weakness in manufacturing has been persistent amid a weakening in the global economy, past appreciation in the US dollar and higher interest rates stifling demand for goods,” Chadha wrote. “With flaring worries of the economy falling into a mild recession this year, the worst is likely ahead for manufacturing.”
On Friday morning, the oft-overlooked Leading Economic Index from The Conference Board registered a 10th-straight monthly decline in January.
“Reasonable minds can disagree about whether the economy is headed for recession or a soft landing, especially after a recent run of strong data,” said Wells Fargo economists Tim Quinlan and Shannon Seary. “The Leading Index is not waffling however.”
As has been the case now for some months — and perhaps to an extent that is fraying nerves among those closely following the U.S. economy’s every move — there remains something for everyone in the latest batch of data.
Bitcoin $25,000
Last week, we noted fundamental pressures on the crypto space were building, with corporates paring back plans and regulatory actions picking up.
This week, the regulatory actions continued, most notably as the SEC charged Terraform Labs and its founder, Do Kwon, with securities fraud.
Though it feels like a lifetime ago in the crypto space, the collapse of the Terra blockchain ecosystem and its algorithmically-backed stablecoin, Terra USD, kickstarted what ended up being a wave of crypto bankruptcy filings in 2022.
Against, this backdrop, however, bitcoin’s (BTC-USD) stellar start to 2023 only continued.
And on Thursday, bitcoin crossed $25,000 for the first time since August 2022.
Year-to-date, bitcoin is up about 50%.
In a note to clients on Friday, Bank of America Global Research strategist Michael Hartnett called the move in the world’s largest cryptocurrency “feverish.”
However one chooses to characterize the move, bitcoin appears determined to chart a course independent of what remains largely downbeat news flow related to the crypto industry. Perhaps there’s nothing more bullish than that.
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Source: https://finance.yahoo.com/news/economic-landings-economic-signals-bitcoin-25000-3-top-stories-from-this-week-120058611.html