To The Moon

Key Highlights
- The $S&P 500(.SPX)$ was up 6.18% in January, bringing its one-year return to -9.72%.
- The $DJIA(.DJI)$ gained 2.83% for the month and was down 2.98% for the one-year period.
- TheS&P MidCap 400increased 9.14% for the month, bringing its one-year return to 0.65%.
- The S&P Small Cap 600 was up 9.40% in January and had a one-year return of -2.53%.

Howard Silverblatt

By Howard Silverblatt,  Senior Index Analyst, Product Management, Click to read Full article.

Market Snapshot

This month's Q4 2022 earnings releases demonstrated that following the money (starting with earnings and then cash flow) always seems right, especially if you are paying bills (payroll, CapEx, dividends and buybacks).

While the actual Q4 bottom-line results weren't good, they weren't as bad as some feared; the quarter is expected to end 2.7% above Q3 2022 (which would still be down 8.8% from the record Q4 2021, when the $S&P 500(.SPX)$ closed the year at 4,766).

The actual top-line results (sales) showed a slowing of the ability of companies to pass along higher costs (with some extra profit included), as sales for the quarter are expected to be a tick higher (0.9%) than the record Q3 2022 (when consumers were willing to pay more, or "revenge spending" as it's now labeled).

Along with the relatively decent numbers were numerous warnings from CEOs of harder times, squeezed margins (which at 11.48% for Q4 2022 remain significantly higher than the historical 8.29% average since 1993) and consumer pullbacks. Joining CEO commentaries was the lack of long-term pessimism and the belief that they could pull through the current downturn, all of which has pushed the market into the belief of two more FOMC increases of 0.25% each, even as U.S. Fed comments remain a bit more hawkish.

The resulting belief was that the sun will come out (in the second half), as the $S&P 500(.SPX)$ posted its first January gain after three years of declines (up 6.18% this January, compared with -5.26% for January 2022, -1.11% for 2021 and -0.16% for 2020). And a happy January tends to make for a happy year, as "so goes January, so goes the year" has historically been correct 71% of the time.

While Santa Claus didn't show up for Christmas, the benevolent being did make a welcome appearance in January, as the $S&P 500(.SPX)$ closed at 4,076.60, up 6.18% (6.28% with dividends) from last month's close of 3,839.50, when it was down 5.90% (-5.76%) from November's close of 4,080.11 (5.38%, 5.59%), and October's close of 3,871.98 (7.79%, 8.10%).

It was the first January gain after three years of January declines. While the start (and January barometer indicator) was appreciated, the index still had a long way to go to make up for last year's decline. The three-month period posted a gain of 5.28% (5.76%), while the one-year return was -9.72% (-8.22%), the 2022 return was -19.44% (-18.11%).

• The $DJIA(.DJI)$ ended the month at 34,086.04, up 2.83% (2.93% with dividends) from last month's close of 33,203.93, when it was down 4.17% (-4.09%) from November's close of 34,589.77, when it was up 5.67% (6.04%).
• The $DJIA(.DJI)$ was down 7.37% from its Jan. 4, 2022, closing high (of 36,799.65). The three-month return was 4.13% (4.68%) (2022 return was -8.78%; -6.86%), while the one-year return was -2.98% (-0.92%).

For January, 8 of the 11 $S&P 500(.SPX)$ sectors were up (compared with December 2022, when all 11 declined), with Consumer Discretionary doing the best, up 14.99% (after last year's 37.58% decline), and Utilities doing the worst, down 2.04% (after 2022's mild 1.44% decline).

On an aggregate basis, the $S&P 500(.SPX)$ increased USD 1.981 trillion (to USD 34.114 trillion) for the month, while it declined USD 8.224 trillion for 2022. It was up USD 6.050 trillion from the Feb. 19, 2020, start of the COVID-19 pandemic.

For Q4 2022, 170 issues have reported (44.4% of the market value), with 119 (70.0%) of them beating on earnings and 107 of 169 (63.3%) beating on sales. For Q4 2022,

• earnings are expected to post a 2.7% gain over Q3 2022 and be down 8.8% over Q4 2021.
• Sales were expected to be up a tick (0.9%) from the record Q3 2022 level (and potentially set a new record) and up 6.5% over Q4 2022.
• Operating margins for Q4 2022 were expected to be 11.48%, up from 11.28% in Q3 2022 (the average since 1993 was 8.29%, and the record is 13.54% in Q2 2021).
• Significant EPS impact due to share count reduction for Q4 2022 was posted by 21.40% of the issues, compared with Q3 2021's 21.24%, 14.89% in Q4 2021 and Q4 2020's COVID-19-inspired 6.01%.

For fiscal-year 2022, earnings are expected to decline 4.8%, with a P/E of 20.6. For 2023, estimates call for a 11.9% increase, as the forward P/E is 18.4.