Market Commentary — January 9, 2023

A Friday rally after an encouraging jobs report helped propel markets into positive territory in the first week of the new year. Communication Services led the gains on a sector basis, with rallies in Charter Communications, Netflix, and Facebook parent Meta Platforms.

Earlier in the week, Minneapolis Fed President Neel Kashkari said he expects the Federal Reserve will need to raise interest rates by another percentage point over the next few months to 5.4%, despite signs that inflation is decelerating.

But Friday’s “goldilocks” payrolls report helped raise investor hopes for a “soft landing” with cooler inflation absent a significant economic recession. Nonfarm payrolls rose by 223,000 in December, the smallest increase in two years.
Unemployment fell back to its post-pandemic low of 3.5%, last recorded back in September. But more importantly, this healthy job growth appeared to be accompanied by cooling growth in average hourly earnings, which rose 0.3% in December, slightly below expectations. Job growth without wage inflation? That seems just right!

Treasury yields fell on the news, sending the 10-year note down to 3.6%, the 2-year yield down to 4.3% and the 30-year declined to 3.7%. Despite a 70 bps inverted yield curve overhang, we may be one CPI print from a 25-50 bps rate hike in March and a slower pace or even a pause in rate increases.

ETF Prime’s Nate Geraci put out a great piece called ETFs in Pictures 2022. Some of the highlights: despite the bear market, nearly $600 billion flowed into ETFs in 2022, trailing only last year’s haul of $900+ billion. The year’s impressive inflows were despite the fact that 85% of equity ETFs and 80% of bond ETFs were down on the year.

Meanwhile, mutual funds experienced record outflows, with a massive $1.5+ billion gap between ETF and mutual fund flows. Clearly, ETFs have surpassed mutual funds as the investment vehicle of choice. Also notable is the continued rise of bond and active ETFs.

Russia ETFs are no longer a thing thanks to the Russia-Ukraine War. And 2022 marked the year for the first Single Security ETFs, launched by issuers such as AXS, Direxion, and GraniteShares. And yes, there is still no spot Bitcoin ETF.

Happy New Year everyone and all the best in 2023. To read our full market commentary for the quarter and the year, click here.

Jane Edmondson
CEO and Co-Founder

About

EQM Indexes LLC is a woman-owned firm dedicated to creating and supporting innovative indexes that track growth industries and emerging investment themes. Co-founded by Jane Edmondson, a former Institutional Portfolio Manager with more than 25 years in the investment industry.

Disclosure

The information provided on this page is for illustrative purposes only and is not intended to serve as investment advice. The information provided is as of particular time and subject to change at any time without notice.

It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. EQM Indexes does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. EQM Indexes Indices makes no assurance that investment products based on the Index will accurately track index performance or provide positive investment returns. EQM Indexes is not an investment advisor, and makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth in this article. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by EQM Indexes to buy, sell, or hold such security, nor is it considered to be investment advice.