Stableford Capital Insights
Stableford Market Commentary February 2023
Payroll Proves Pernicious to Powell Pivot
After beginning the year on a strong note equity and bond prices fell during February as strong economic data quashed hopes of a rapid Fed pivot. Ten-year U.S. Treasury yields leapt 42 basis points to 3.92% in February following a strong January payroll report of 517,000 additions, far above the highest economist estimate.[caption id="attachment_4034" align="aligncenter" width="940"]
![Graph showing Rates increasing during Feb 2023](https://cdn.prod.website-files.com/6683b01ac073e8ac0a368ef0/6683b01ac073e8ac0a3693cf_Exhibit_1_RatesUpto3.9Percent-1024x453.png)
Exhibit 1—Rates Up to 3.9% on Strong Economic Figures[/caption]Additional robust economic reports during the month including the ISM Services index and CPI kept interest rates moving toward the important 4% level that traders doubted they’d see again so soon.The prospect of sticky inflation and higher interest rates also pushed equities down nearly 2.7% in February as the prospect of a Fed pivot that drove the January rally was quashed.[caption id="attachment_4035" align="aligncenter" width="940"]
![Graph showing equities falling in February 2023](https://cdn.prod.website-files.com/6683b01ac073e8ac0a368ef0/6683b01ac073e8ac0a3693cc_Exhibit_2_EquitiesFallOnFearsOfOverheating-1024x450.png)
Exhibit 2—Equities Fall on Fears of Overheating[/caption]Equities continue to bounce between the prospect of a stronger-than-expected economy and the risk of the Fed needing to push rates higher. So far 2023 economic readings and surveys had proven vigorous. But the Fed desires a slowdown to core PCE inflation and labor, which thus far is elusive.
Stableford’s View
While equities and bonds have fallen on stronger than expected economic news, there is reason to doubt the veracity of the economic figures. No doubt, the economy is stronger than the Fed wants, but the January payroll figures that induced the move in February were altered by the largest seasonal adjustment of the year, approximately 3 million jobs (BLS adjusts monthly statistics to account for seasonality—but introduces further errors by doing so). Ex this adjustment, the January figure would have been -2.5 million, not +517,000. The upcoming February figures may also prove strong as the weather has been unusually warm, but the seasonal adjustment figures are substantially lower. So, we may not get a “clean” look at the jobs situation for a while.In the meantime, the key discounting mechanism for earnings—interest rates—continue to move higher. Earnings multiples remain high as well, and there is still risk to future earnings coming down, though this has been reduced by the recent economic strength. As always, we work to balance between the prospects for portfolio appreciation and the downside risks from the macro data.
Are you interested in making portfolio changes or getting a more in-depth analysis? Contact Stableford today by calling 480.493.2300 or simply request a copy of our Market Blast.
SUBSCRIBE TO OUR COMPLIMENTARY STABLEFORD MARKET BLASTThis market commentary was written and produced by Stableford Capital, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.