Portfolio Manager Commentary

February 1, 2023

The Portfolio Manager Commentary is provided by Trustmark’s Tailored Wealth Investment Management team. The opinions and analysis presented are accurate to the best of our knowledge and are based on information and sources that we consider to be reliable and appropriate for due consideration¹.

Economic Outlook

The Index of Leading Economic Indicators was down 1.0% in December, following a 1.0% move down in November. Durable Goods Orders were up 5.6% in December after having been down 1.7% in November. Industrial Production was down 0.7% in December, with Capacity Utilization down slightly, to 78.8%. New Home Sales came in at a 616,000-unit rate for December, which is still well below trend. The NAHB New Housing Market Index was 35 in January after having been 31 in December (50 represents a flattish expected environment for new home sales). On the pricing front, Producer Prices were down 0.5% in December, with a year-over-year increase of 6.5%. The PCE Index for consumer prices was up 0.1% in December, the same level as November. Finally, the Employment Cost Index was up 1.0% in the 4th quarter of 2022, after having been up 1.2% in the third quarter.

Fixed Income

The U.S. Treasury Yield Curve remains inverted, with the 10-year yield trading at 3.52%, 71 basis points below the 2-year yield of 4.21% . Interestingly, there is no real inversion from the Federal Funds Rate to the 2-year U.S. Treasury Note yield. The Federal Reserve Open Market Committee is meeting January 31st and February 1st, and we should have some updated Fed announcements in our February 15th commentary. Expectations for this latest FOMC meeting is for closer to a 0.25% interest rate increase. The most recent Federal Funds rate increase left the Federal Funds rate range at 4.25% to 4.50%.

Yield Curve

Current Generic Bond Yields

Equity

The S&P 500 started the year off strong with a +6.29% finish to the month of January and is up 14% since the low of 3577 in October. There seems to be generally improving sentiment and rising hopes of a soft landing, however, still debate regarding whether this move constitutes the start of a new bull market or is simply a bear-market rally. Positive notes pointing towards a bull include sentiment being at extreme pessimism near lows of last year and improving since then with positive market breadth, which refers to the number of stocks participating in a given move, and increasing disinflationary signals plus an easing (but still strong) job market which can help lead to the end of the Fed’s rate hikes.

Consumer Discretionary (+15.13%) and Communication Services (+14.77%) lead the broad market rally with Technology (+9.26%) playing a big part in the positive return of the S&P 500, due to the top holdings including names such as Apple, Google, Microsoft, etc. Consumer Staples (-1.09%), Health Care (-1.83%), and Utilities (-2.00%) are the only negative sectors for the year.