February 1, 2023 

Equity markets continued to surge higher in January, as the S&P 500 was up +6.28%, US small caps +9.49%, US mid-caps +9.23%, international developed +8.01%, and emerging markets +7.64%1.

The above returns demonstrate the value of being diversified into smaller-company equities and international equities at a time when many investors are concerned about the US debt ceiling. Indeed, January has been a good start for our relatively bullish 2023 forecast for US small caps and emerging markets, as detailed in our 1/3/23 newsletter. Perhaps counterintuitively, equity markets often climb a “wall of worry,” rising when investors’ anxiety about a particular risk seems high. Historically, concerns over gridlock in Washington and debt ceilings have caused market volatility that was fleeting in nature, and we don’t think this time will be any different. However, brinksmanship amongst politicians could still cause more short-term volatility. Indeed, the US federal government has already hit its debt ceiling, and Treasury Secretary Janet Yellen indicated that “extraordinary measures” will likely be able to fund the government’s obligations through early June2. While we view a US federal government default on its debt obligations as highly unlikely, political brinksmanship could cause more short-term volatility until the near-term debt ceiling overhang is addressed. This is one of the reasons why we took profits on equity exposures by reducing equity exposures to target weight for most clients on 1/9/23, after being overweight equities during a large equity market increase from 9/26/22 levels.

The 10-year Treasury yield (10yrTy) declined in January from 3.88% to 3.51%, causing Treasury bond prices to rise1. We believe the 10yrTy has been declining primarily due to a trend of moderation in the rate of inflation, as the Consumer Price Index slowed from 9.1% year-over-year growth in June 2022 to 6.5% in December 20223. We expect the rate of inflation to continue to moderate, which may make large increases in the 10yrTy unlikely in the short term.

External sources: Bloomberg data1, CNBC.com2, US Bureau of Labor Statistics3.

For more information about our investment philosophy, see MTC Wealth Management.


Non-deposit investment products available through Members Trust Company are not deposits of or guaranteed by the trust company, a credit union or credit union affiliate, are not insured or guaranteed by the NCUA, FDIC or any other governmental agency and are subject to investment risks including possible loss of  the principal amount invested. Members Trust Company, owned and managed by America’s credit unions, is a special purpose federal thrift regulated by the Office of the Comptroller of the Currency. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Past performance is not indicative of future results. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant. Any opinions expressed are those of the presenter and do not necessarily reflect the position of Members Trust Company. The information above is obtained or compiled from sources we believe to be reliable. We Do Not Guarantee that such information, will be free from errors, omissions, whether human or mechanical, nor do we guarantee their timeliness, accuracy, or completeness.