Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

 Data 

• U.S. equity indices ended the week lower, led by the growth-oriented Nasdaq.
  • S&P 500 -1.97% Dow -1.68%, Russell 2000 -1.87%, Nasdaq -2.95%  
    • The All-Country World Index lost 2.76%. 
  • S&P 500 sub-sectors were mixed last week as defensive areas led.  
    • Healthcare led to the upside followed by Real Estate, Staples, & Utilities. 
    • All other sectors lost ground led by Energy (-5%) & Tech (-4%). 
  • The CBOE Volatility Index (VIX) shot higher by 15% to close above the critical 20 level. 

• US Treasury bond yields were all lower last week as the curve flattened.
  • US 2yr -0.02% at 0.63%, 10yr -0.08% to 1.40%, 30yr -0.05% to 1.82%. 
  • The Aggregate bond market squeaked out a gain over the 5 day period. 

• Commodities as an aggregate asset class were lower last week.
  • WTI Crude lost 1.93%. 
  • Gold was gained 0.84%. 
  • The US Dollar index rose 0.60%. 

• In our opinion, U.S. economic data was mixed last week.
  • Measures of inflation continued to rise as Producer Prices came in at a record pace in Nov. 
  • Retails sales rose in November, but black Friday sales were lower than expected. 
  • Flash PMIs for early December showed business activity expanding at a slower pace. 

• An index of equities outside the US (FTSE All-World ex-US) declined 1.74%. 

Conclusion 

• Equity markets turned over last week as they failed to follow through on the initial post-Federal Reserve meeting bounce.
  • After recent outperformance, the Nasdaq led to the downside.  
    • Megacap Growth companies that have been remarkably resilient all year showed weakness as names like Apple & Microsoft dropped 5%. 
  • Small-caps ended the week near the bottom of their almost year long trading range.  
    • We remain cautious on any move higher by the markets until small-caps participate to the upside. 

• S&P 500 subsectors were mixed last week as Defensives shined.
  • Healthcare led by a wide margin with a gain of 2.48%. Real Estate was 2nd with a gain of 1.75%. 
  • Energy, Technology, & Consumer Discretionary led to the downside with losses over 4%. 

• As we’ve discussed and written about recently, the lack of breadth or participation to the upside remains a concern.
  • Last week saw what happens when the biggest co’s that were contributing an outsized % of index returns fail to hold up. 
  • This was a key input that led to us harvesting profits a couple of weeks ago and being patient on redeploying this capital. 

• In our opinion, domestic equities are undergoing a “stealth correction” at present.
  • Only 30% of NYSE equities are above their respective 50 day moving average price. 
  • Furthermore, only 46% are currently trading above their 200 day moving average. 
  • This is the lowest since back in 2020 and well below the levels for the 2019 pre-Covid period. 

• Correlating and lagging Covid cases & deaths in South Africa may indicate that Omicron’s mortality rate is much lower than anticipated. 
  • We will continue to monitor this data as the world is just now starting to see widespread cases being the Omicron variant. 

• International equities were once again weak in the latest trading timeframe.
  • We continue to note ongoing US Dollar strength as a headwind. (USD +0.60% last week) 
  • The outperformance of US Large & Megacap equities relative to various major international & emerging market equity gauges remains very large year-to-date. 
  • While this has continued the recent decade+ trend, future actions by the Federal Reserve could drive this relationship to tightened or even reverse. 

• We continue to watch large institutional positioning with equities as these large pools of money often drive returns.
  • Positioning of inst’l investors has already declined significantly to the bottom 3rd of their history. 
  • Many are heavily short (betting on declines) many areas of the equity markets. 
  • These short positions likely need to be closed in the next month and this could cause a systemic bid for equity markets. 
  • We remain cautious but optimistic & will continue to let data determine our risk mgmt process. 

Ryan A. Mumy, CFP®,
AIF® – Chief Investment Officer

Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net 

 1 Source: Bloomberg – 2/25/2022

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