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Week in Review: Feb.6.2023 - Feb.10.2023

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February 13, 2023

The S&P 500 index fell 1.1% last week, with the communication services sector leading a broad decline as Q4 earnings continued to come in mixed and rate concerns persisted. The market benchmark ended Friday's session at 4,090.46, down from last Friday's closing level of 4,136.48. It is still up 6.5% for the year-to-date.

The S&P 500 had a strong start to 2023, jumping 6.2% in January, amid hopes for the Federal Reserve's Federal Open Market Committee to slow its rate increases. However, the index gave back some of those gains in the past week as investors have grown more concerned about how much the FOMC will be able to slow rates, especially after January jobs data released last Friday came in stronger than expected, indicating more aggressive moves may still be needed to fight inflation.

Adding to investors' concerns, corporate earnings have been coming in mixed, with some companies issuing downbeat guidance while others have warned they are preparing for possible recession.

Communication services had the largest percentage drop, falling 6.6%, followed by a 2.2% slip in consumer discretionary, a 2% decline in real estate and a 1.7% drop in materials. All other sectors also declined, with the exception of energy, which rose 5%.

The decliners in communication services included shares of Lumen Technologies (LUMN), which tumbled 25% on the week. The wireline operator's Q4 results topped analysts' mean estimates but its guidance for 2023 missed. The company forecast 2023 adjusted earnings before interest, taxes, depreciation and amortization of $4.6 billion to $4.8 billion, well below analysts' mean estimate at the time of $5.23 billion, according to Capital IQ. Lumen also forecast 2023 free cash flow of $0 to $200 million, versus analysts' mean estimate at the time of $332.3 million.

In the consumer discretionary sector, shares of VF Corp. (VFC) fell 14%. The branded apparel and footwear company posted fiscal Q3 adjusted earnings per share and revenue above analysts' mean estimates but said it is shifting resource priorities across the company, including reducing its dividend, exploring the sale of non-core assets, cutting costs and eliminating non-strategic spending. The new quarterly dividend is down 41% from the previous quarter's dividend.

On the upside, the energy sector's climb came as crude oil and natural gas futures rose. Gainers included shares of Phillips 66 (PSX), which rose 8.7% as the company's board boosted its quarterly dividend by 8%. Phillips 66 was also one of 18 energy companies that received a contract from the US Defense Logistics Agency for various types of fuel.

Next week's earnings reporters will include Coca-Cola (KO), Airbnb (ABNB), Marriott International (MAR), Cisco Systems (CSCO), Applied Materials (AMAT) and Deere (DE).

Economic reports being released next week will be heavy on inflation readings early in the week, with the New York Fed's latest inflation expectations due on Monday and the January consumer price index on Tuesday.

January retail sales as well as the industrial production index for the month are among the reports expected on Wednesday, followed by the final reading on the January producer price index as well as building permits and housing starts on Thursday. The January import price index and the index of leading economic indicators will round out the week on Friday.

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