Capital Market Impact

Markets pause on investor confusion

January 23, 2023
Not too hot, not too cold stock market graphic.


  • Equity markets took a breather following a strong start to the year, as the soft-landing narrative came under increased scrutiny following macro data and modestly disappointing earnings. Additionally, a contentious debate over the debt ceiling has some investors concerned about the politicization of default fears. The S&P 500® Index lost nearly 1% for the week, though the market remains 3% higher for the year. Investors continue to aggressively buy bonds, with the 10-year yield below 3.45%, and the yield curve still at historic levels of inversion.
  • Equity markets remain modestly higher for the year, though the lack of decisive movement reflects investors’ uncertainty. Bulls are pointing to improving hope for a soft landing, the looming Fed pivot, and easing financial conditions. Bears point to earnings headwinds, a Fed that is committed to tight policy, geopolitical tensions, and the looming debt ceiling fight. Several topics, such as the labor market and the strength of the consumer, have compelling arguments on both sides of the spectrum.
  • The strength of the global economy is a big question this week and next as industrials and technology companies gear up to report earnings. With greater exposure to international markets, their performance will be a good guidepost for how the global economy is doing compared to the U.S. We can expect to still see healthy earnings from these companies, despite recent layoffs.


  • Producer prices unexpectedly fell in December, dropping 0.5% compared with expectations for a 0.1% increase on a sharp drop in energy prices. Headline PPI rose 6.2% from a year ago, the lowest level in nearly two years, while core PPI rose 5.5% from a year ago. Retail sales surprised to the downside, falling 1.1% in December on sluggish holiday shopping demand and declining pressure from inflation. Sales rose 6% from a year ago, which lagged the pace of inflation. The tone of economic data has shifted, with releases increasingly disappointing relative to expectations. The Citigroup Economic Surprise Index has fallen to -19 after being above neutral since September, though the European ESI is at the best level since mid-2021. Economic sentiment, however, is improving from historically weak levels, with a JPMorgan model showing less than 50% odds of a global recession, down from 98% in October.
  • Roughly 10% of the S&P 500 companies have reported earnings, and the current trend is for a decline of 5% from a year ago, likely to mark the first earnings decline since the third quarter of 2020. This is a sharp deterioration from the 4% gain that had been expected as of September. Estimates for 2023 continue to moderate, with the current expectation for 4% growth, down from 8% as of September. There continues to be risk to this estimate given continued margin pressure and the current heavy reliance on double-digit growth in the fourth quarter of 2023, following declines in the first two quarters. The percentage of companies with positive three-month change in forward earnings is down to 52%, similar to levels seen in the recessions of 2001, 2008, and 2020.
  • The Treasury Department has taken extraordinary measures to avoid breaching the debt limit after hitting the $31.4 trillion ceiling on Thursday, including utilizing two government-run funds for retirees. Treasury Secretary Yellen noted that there is a finite period when these measures will plug the hole, possibly by June. Since 1985, the Treasury has been forced to enact similar measures more than a dozen times, as Congress tends to use this process for concessions, often resulting in brinksmanship. House Speaker McCarthy said there is no chance that the U.S. defaults on its debt, but the negotiations will be messy.

What to Watch

  • Earnings season materially escalates this week, providing a clearer view of the macro environment. Economic data is plentiful, including the index of leading indicators on Monday, PMI data on Tuesday, our first look at fourth quarter GDP, new home sales, and durable goods on Thursday, and the PCE deflator, personal income and spending, and consumer sentiment on Friday.


  • This material is not a recommendation to buy or sell a financial product or to adopt an investment strategy. Investors should discuss their specific situation with their financial professional.

    S&P 500® Index: An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries; gives a broad look at the U.S. equities market and those companies’ stock price performance.

    S&P Indexes are trademarks of Standard & Poor’s and have been licensed for use by Nationwide Fund Advisors LLC.  The Products are not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s does not make any representation regarding the advisability of investing in the Product.

    Nationwide Funds distributed by Nationwide Fund Distributors LLC, member FINRA, Columbus, Ohio. Nationwide Investment Services Corporation, member FINRA, Columbus, Ohio.

    Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2023 Nationwide