· The broader averages continued to make headway while the cyclically-laden Dow Jones Industrial Average, an outperformer during 2022, continued to lag. Friday was somewhat of a mirror image of Thursday with tech stocks rallying on comments that were interpreted as dovish during Fed Chair Jerome Powell’s post Open Market Committee Meeting (FOMC) press conference Wednesday afternoon. Those same stocks gave back some, but not all of the gain during trading on Friday on a stronger than expected payroll report.

· The Open Market Committee of the Federal Reserve (FOMC), the body that determines monetary policy concluded a regularly scheduled two-day meeting this past Wednesday. Although the Fed continued raising interest rates, this time by 0.25%, there was some conciliatory language from Fed Chair Jerome Powell during the press conference shortly after its conclusion. During prepared remarks prior to fielding questions, Powell noted that “inflation data received over the past three months shows a welcome reduction in the monthly pace of increases. And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.” Other notable comments from Powell within that press conference included:

o “I will say that it is gratifying to see the disinflationary process now getting underway.”

o “Different participants have different forecasts, but generally those forecasts are for continued subdued growth, some softening in the labor market but not a recession – not a recession.”

o “You see inflation coming down because supply chains have been fixed, demand is shifting back to services, and shortages have abated.”

o “Although inflation has moderated recently, it remains too high. The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched.”

o Responding to a question regarding inflation coming down in the core services sector, excluding housing, Powell stated that “we’ll see more persistent inflation in that sector which will take longer to get down. And we’re just going to – we have to complete the job, you know, that’s what we’re here for.”

It is with the above in mind as well as the jobs data below (January Non-Farm Payroll Reports and the Job Openings and Labor Turnover Summary [JOLTS]) that at this time we believe there will be pause in rate hikes during 2023, but perhaps no pivot. That said, the recent decline in bond yields has implied a rate cut (pivot). The big question is that if we are correct in a pause, but no pivot is whether or not the former is currently priced into the market. We believe for the most part, it has.

· January Payrolls Swell by 517,000, more than two times the consensus estimate thereby laying temporary rest to the notion that the labor market was cooling. Within the report the Labor Department also found that the Unemployment Rate ticked down to 3.4% during January, the lowest since May 1969.

· The Institute for Supply Management’s (ISM) Service Sector Index rebounded to 55.2% during January from December’s 49.2%. (A reading below 50% indicates a contracting sector). It is difficult to fathom that should service, a sector that represents roughly two-thirds to U.S. GDP, remain strong that a recession of any significant depth is possible.

· Meta Platforms (META), the company formerly known as Facebook, reported earnings of $1.75 per share on revenue of $32.17 billion, with the latter beating expectations. As importantly, Meta CEO Mark Zuckerberg declared 2023 the “Year of Efficiency” allaying some of the recent concerns that the company’s $10 billion foray into the metaverse would grow unabated.

· Price wars in the EV market? Ford followed Tesla’s recent cut in their Model Y earlier this year, announcing a $4,500 cut in the average price of the Mustang Mach E. Ford, the second largest EV maker, sold 65,00 EVs last year paling in comparison to Tesla’s 522,000. This bears watching as Tesla’s fat profit margins can afford cutting prices while Ford’s razor thin ones will make it a little tougher for them.

· Amazon, Alphabet (GOOGL) and Apple and all reported earnings after the closing bell on Thursday, to mixed reviews.

o Amazon, revenues above estimates while earnings fell short. Weakness in Amazon’s crowning jewel, web services, as revenues fell short of expectations

o Alphabet fell short on revenue as well as earnings as YouTube advertising revenue slowed amidst a weakening ad environment.

o Apple also fell short on earnings and revenue on weaker than anticipated sales of iPhones and Macs. However, iPad revenue well exceeded expectation. Despite the lackluster results, the stock rose Friday as CEO Tim Cook expressed optimism that the supply chain issues which impacted those earnings have been mostly rectified which will allow Apple to optimize revenue from their installed base of more than two billion customers.

Investors might continue taking some profit from these stocks as they have appreciated considerably thus far in 2023. However, for long-term investors, they should still be considered core holdings.

· Upcoming Economic Reports scheduled to be released this week include – on Tuesday, the December U.S. Trade Balance and December Consumer Credit; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and on Friday, the preliminary report on February Consumer Sentiment from the University of Michigan.

· There are a number of important earnings data being released to include, BP (BP), Nintendo (NTDOY, Linde (LIN) Totalenergies (TTE), Walt Disney (DIS), Equinor (EQNR), CVS Health (CVS), Paypal (PYPL), Philip Morris (MO), Abbvie (ABBV), Toyota (TM). Loreal (LRLCY) and Pepsico (PEP).

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