Global equities declined 0.3% last week.  U.S. stocks fell 0.7%, developed international equities were unchanged and emerging market stocks rose 0.6%.  Year-to-date, global equities have gained 5.2% with domestics (+3.7%), developed international (+7.1%) and emerging markets (+8.4%).  Bonds rose 0.2% for the week, up 2.1% year-to-date.  The U.S. 10-yr Treasury yield fell 2 bps to 3.48%.

The S&P 500 posted its first down week of 2023 falling 0.6% amid mixed earnings results and ongoing concern about the prospect of a recession.  As fourth quarter earnings season progresses, analysts have been scaling back expectations for 2023.  Earnings forecasts for the first and second quarters have recently flipped from modest year-over-year growth to modest year-over-year declines, though consensus expectations still call for full year earnings growth of about 4%.  Partisan brinkmanship over the nation’s debt ceiling caught investors’ attention as Democratic and Republican leaders remained at odds.  On Thursday, the Treasury department began taking special measures to meet debt obligations, though policymakers likely have until the third quarter before facing an actual prospect of default.  U.S. retail sales fell by more than forecast in December (-1.1% month-over-month vs. -0.9% expected) with a real year-over-year decline of 0.5%.  While retail sales declines can be a leading indicator of a recession, softness is also an indication that Fed efforts to reduce consumer demand, and in turn inflation, are having an impact.

Earnings season continues in the week ahead, while Thursday brings an initial look at fourth quarter GDP and a reading of PCE – the Fed’s preferred inflation measure.  Economist forecasts call for annual GDP growth of around 2.0% in the fourth quarter and December PCE of 4.4%, down from 4.7% in November.

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