Despite the mixed performance from multiple economic indicators, it was a strong week for equity markets. For the most part, there was surprise weakness, with the S&P Global Manufacturing PMI, ISM Manufacturing PMI, and Chicago PMI all coming in lower than expectations. There was a clear miss in expectations across the manufacturing side of the economy. On the flip side, the services numbers came in slightly better than expectations, with the S&P Global Services PMI and ISM Non-Manufacturing PMI coming in above expectations. Lastly, on Thursday, Atlanta Fed President Bostic gave some comments that were perceived as slightly dovish, even though he stated a willingness to move rates higher than previously assumed if the data stays hot. The dovish tone was that he also said he is still interested in a 25 basis point hike despite the recent inflation and other data strength.
Changing pace a bit, we will continue our in-depth look into behavioral finance this week by focusing on cognitive errors. Cognitive errors are due to faulty reasoning and could arise from a lack of understanding of proper statistical analysis techniques, information processing mistakes, faulty reasoning, or memory errors. Such errors can often be corrected or mitigated with better training or information. This week, the focus will be on hindsight bias, which is vital to be aware of no matter what a person analyzes. Hindsight bias is a cognitive error identified across all aspects of life, whereby individuals have selective memory of past events, actions, or what was knowable in the past. The tendency to remember the correct view and forget errors can lead to overconfidence and poor decision-making. To read more about hindsight bias, click here.
Economy
- U.S. equity markets performed well for the week ending March 3, with the S&P 500 up +1.9%, the Nasdaq up +2.6%, and the small-cap Russell 2000 up +2.0%. It was a week of mixed economic reports, with manufacturing PMIs underperforming while services PMIs came in better than expectations.
- The S&P Global Manufacturing PMI for the U.S. was revised lower to 47.3 in February compared to 46.9 in January. The reading showed manufacturing activity shrank for a fourth consecutive month amid further output and new orders contractions, although rates slowed in both instances.
- The ISM Manufacturing PMI increased to 47.7 in February from 47.4 in January, the lowest since May 2020, but fell short of expectations of 48. The reading pointed to a fourth consecutive month of declining factory activity. Companies continue to slow outputs better to match the demand for the first half of 2023 and prepare for growth in the year’s second half.
- The U.S. ISM Services PMI was 55.1 in February 2023, little changed from 55.2 in January and above expectations of 54.5. Faster increases were seen for new orders (62.6, the highest since November 2021 vs. 60.4 in January), new export orders (61.7 vs. 59), and employment (54, the highest since December 2021 vs 50). Also, price pressures eased (65.6 vs. 67.8), and supplier deliveries fell (47.6, the fastest delivery performance since June 2009 vs. 50).
- The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased by 9 bps to 6.71% in the week ended February 24, 2023, a new high since November after rising by 44 bps in the previous two weeks. Rates went up for a third straight week after falling for five consecutive weeks and tracking a rise in Treasury yields amid expectations the Fed would need to keep monetary policy restrictive for a more extended period.
Stocks
- U.S. equities were in positive territory. Materials and Industrials were the top performers, while Utilities and Consumer Staples lagged. Growth stocks led value stocks and small caps beat large caps.
- International equities closed higher for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield increased 2 basis points to 3.96% during the week.
- U.S. bond markets were in positive territory this week while International bond markets were negative.
- High yield bonds led for the week, followed by corporate bonds and government bonds.
