This Weekly Financial Markets Update reviews the top market headlines: Fed Dials Back Rate Hikes, Jobs Report Surprises to the Upside, Business Activity Deviates Across Sectors.

Top Three Market Headlines

Fed Dials Back Rate Hikes: The Federal Reserve last week raised the target for its interest rate benchmark, the federal-funds rate, by another quarter-percentage point to a range of 4.50% — 4.75%. This was the eighth rate increase enacted by the Fed in the last 12 months, though the latest move was the smallest since March 2022, following a half-point raise in December and four separate three-quarter percentage point hikes prior. Fed Chairman Jerome Powell stated that policymakers expect a "couple" more rate increases in an on-going effort to tame inflation; at the same time, officials acknowledged that inflation has eased, and Chairman Powell noted that "the disinflationary process has started."

Jobs Report Surprises to the Upside: The Labor Department reported last week that U.S. nonfarm payrolls rose in January by 517,000, the largest amount in six months. January's growth, which benefited from so-called "seasonal adjustment factors" applied to the data, was led by the leisure and hospitality, professional and business services, and health care sectors. Concurrently, the unemployment rate dipped slightly to 3.4%, the lowest level in more than 53 years. Meanwhile, wage pressures facing businesses showed signs of abating, as average hourly earnings increased at a 4.4% annual pace, the lowest in 18 months.

Business Activity Deviates Across Sectors: Business activity diverged starkly across different segments of the U.S. economy in January, according to surveys of executives by the Institute for Supply Management (ISM). The ISM Services Index rebounded to 55.2% after briefly dipping below 50% in December, indicating a quick return to expanding business conditions. (A reading above 50% indicates expansion of activity, while sub-50% reflects contraction). On the other hand, the ISM Manufacturing Index continued to reflect weakening activity, slipping to 47.4%, its third straight monthly reading below 50%.

As of February 6, 2023 Week Quarter-To-Date Year-To-Date One-Year
MSCI All Country World 0.98% 8.48% 8.48% -6.71%
S&P 500 1.64% 7.86% 7.86% -6.07%
Russell 2000 3.90% 12.81% 12.81% 1.17%
MSCI EAFE 0.46% 9.05% 9.05% -3.67%
MSCI Emerging Markets -1.18% 8.65% 8.65% -11.66%
FTSE NAREIT Equity 1.79% 11.90% 11.90% -8.79%
Bloomberg Commodity -3.98% -4.66% -4.66% 0.37%
Barclays U.S. Aggregate 0.03% 3.02% 3.02% -8.18%

Federal Reserve 2/1/2023, Bloomberg 2/3/2023, Institute for Supply Management 2/03/2023, U.S. Bureau of Labor Statistics 2/03/2023, WSJ 2/01/2023. Data from Morningstar Direct. Returns for periods greater than one year are annualized. Gallagher Fiduciary Advisors, LLC ("GFA") is an SEC Registered Investment Adviser that provides retirement, investment advisory, discretionary/named and independent fiduciary services. GFA is a limited liability company with Gallagher Benefit Services, Inc. as its single member. GFA may pay referral fees or other remuneration to employees of AJG or its affiliates or to independent contractors; such payments do not change our fee. Securities may be offered through Triad Advisors, LLC ("Triad"), member FINRA/SIPC. Triad is separately owned and other entities and/or marketing names, products or services referenced here are independent of Triad. Neither Triad, Arthur J. Gallagher & Co., GFA, their affiliates nor representatives provide accounting, legal or tax advice.