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Market Review February 6 2023 reports, research and outlook
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April 2024

Market Review - February 6, 2023

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Introduction

2022 was one of the most turbulent years for investors in recent times. Trillions of dollars were wiped off the equity and bond markets. The aftermath of the response to the Covid-19 pandemic, supply chain issues, and the Russia-Ukraine war caused a spike in inflation. The resulting interest rate increases ushered in a period of higher volatility and fear. Few asset classes were left unscathed. The S&P 500 was down almost 20%, while the tech-heavy Nasdaq saw a 33% decline.

2023 has been a blistering year so far for the financial markets. The price action is in large part due to the U.S. Federal Reserve's interest rate changes. The Fed's Dual Mandate of maximum employment and low inflation prompted a 4% increase in interest rates in 2022 to combat the runaway inflation. The inflation figures have been swiftly falling, so the Fed curbed its most recent interest rate hike to just 0.25% with the hopes of avoiding a prolonged recession. The markets reacted as expected. Risk-on assets have soared, making up for some of the losses from the previous year.

Market Indices

The NASDAQ-100 (QQQ), S&P 500 (SPY), Dow Jones Industrial Average (DIA), and the Russell 2000 (IWM) have seen varying degrees of positive returns. The Nasdaq leads the way with a substantial 15% increase year-to-date, followed closely by the small-cap Russell 2000 at 13%. The S&P 500 spirited a healthy 7.8% return since the turn of the year and finally, the Dow has lagged behind with a positive 2.4% gain.

Market Indices performance year-to-date

The main question on the top of investors' minds is whether this is a bear market rally or a continuation of the previous decade's unprecedented bull run. Everyone's eyes will be firmly fixated on the Fed's actions in the coming months, to see if they can succeed in their hopes of a 'soft landing'.

Factors

Style factors are another important asset class that many investors should be aware of and have exposure to. Let's take a look at the year-to-date performance of some of the most prevalent style factors - Value, Quality, Low Volatility, Dividend Yield, and Momentum. To analyze these factors we took a range of different ETFs with the largest market capitalizations from each style factor.

factor performance year to date

Value has continued its impressive 2022 run with a strong start to the current year. Historically, Value has performed well in high-interest rate environments as investors look for nearer-term duration cash flows that are generated by stocks with low earnings multiples. Similarly, Low-Vol has been shown to provide good downside protection against broader market declines and higher volatility regimes. Quality has had a bumper January also.

If you'd like to learn more about equity style factors then you can visit our topic here.

Sectors

There are 20 high-level sectors in the U.S. equities market. These include Technology Services, Retail, Transport, and so on. Let's take a look at the top-performing sectors of the past week, ending Friday 3rd February.

sector performance weekly

In accordance with the factor and market indices data, we can see that the Technology Services sector outperformed last week, increasing over 6% on average across 576 stocks, adding almost $730Bn to the combined market capitalization of these stocks. Meta saw a 23% increase in its share price in the past week alone. It still lags it's all-time high by almost 50%.

Cryptocurrency

As we stated in the introduction to this piece, risk-on assets are soaring and cryptocurrency may hold the title of the most risk-on asset class. Bitcoin is up almost 40% year-to-date.

Bitcoiners worldwide are closely monitoring the asset's correlation with equities. In the 2022 downturn, it experienced a draw down roughly twice that of the Nasdaq. Bitcoin is still reasonably highly correlated with equities while being uncorrelated to gold. Let's see how its performance correlates with the S&P 500, Big Tech, and Gold.

bitcoin correlations

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