Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

 Data 

  • U.S. equity indices sold off hard last week on the back of worse than expected inflation data.
    • S&P 500 -5.05% Dow -4.58%, Russell 2000 -4.53%, Nasdaq -5.60%1
      • The All-Country World Index declined 4.50%.1 
    • S&P 500 sub-sectors all finished lower last week.
      • Energy led with a loss of less than 1%.1 
      • Real Estate, Tech, & Financials led to the downside with losses over 6%.1 
    • The CBOE Volatility Index (VIX) rose 11.98% to finish at 27.76. 1 
  • US Treasury bond yields were higher last week across the curve.
    • US 2yr +0.41% at 3.06%, 10yr +0.20% to 3.16%, 30yr +0.09% to 3.20%.1 
    • The short-end exploded higher on the inflation print to flatten the curve dramatically. 1 
  • Commodities as an aggregate asset class were slightly higher last week despite equity weakness.
    • WTI Crude rose 1.25%.1 
    • Gold gained 1.08%.1 
    • The US Dollar index was up another 2%.1 
  • In our opinion, U.S. economic data was mixed last week.
    • May’s Consumer Price Index surprised to the upside at a 8.6% yearly gain. 1 
    • The June preliminary Consumer Sentiment reading came in at the lowest level ever of 50.2. 1 
    • Jobless claims rose to their highest level since mid-January. 1 
  • An index of equities outside the US (FTSE All-World ex-US) went down -4.07%.1 

Conclusion 

  • Equity markets sold-off hard last week as the market’s hopes for a Fed-guided “soft landing” looked more and more unlikely in the face of fresh, negative economic data.
    • Last week’s rough sessions continued a tumultuous roughly three-month period in the stock market that’s pushed the S&P 500 down 19% from a January record while the tech-heavy Nasdaq 100 has plunged 28% this year. 1 
    • The S&P 500 Index fell 2.9% on Friday to cap its 9th weekly decline in the last 10. 1
      • The tech-heavy Nasdaq 100 Index was down 3.6% while the Dow Jones Industrial Average sank 2.7% for Friday. 1 
  • Inflation was the major driving force last week as the May Consumer Price Index rose more than consensus expectations & bucked a trend of 2 months’ worth of moderation.
    • The CPI figure came in 8.6% higher than last year and up 1% since last month. 1
      • This was the highest reading since 1981. 1 
    • This puts more emphasis on the Fed tightening even faster than the market had been expecting and pricing in to various asset prices. 
  • S&P 500 subsectors were all lower last week.
    • All of the benchmark’s 11 major sectors were lower as consumer discretionary, technology, and financials each slipped more than 3.6% on Friday and ended the week down over 6%.1 
    • Energy was the only sector down less than 2.5% with a loss of 0.89%.1
      • Energy’s trailing 6-month outperformance relative to the S&P 500 is unprecedented by a long-shot over the history of the sector. 1 
  • The VIX ended the week up 11.98%, but is still notably below recent highs and historical levels seen in equity downside exhaustion. 1
    • We remind everyone of the massive option expiration this week which coincides with the next Federal Reserve meeting on the 15th. 
    • As we’ve stated recently, we continue to be patient in this environment as the underlying state of the economy & its various headwinds have not changed in the last several months. 
  • Non-US equities moved firmly lower last week on general equity weakness & a US Dollar that skyrocketed 2% higher. 1
    • While Latin America equities have outperformed year-to-date, Chinese shares positively diverged from the rest of the world last week with a 6% gain. 1 
  • The US Treasury Market saw prices tumble last week as yields surged higher.
    • The 2yr UST which mostly tracks Fed policy rose by the most since 2009 following the unexpected jump in inflation. 1 
    • Revised inflation expectations drove the yield on 2-year Treasuries up to 3.07%, the highest level in 14 years. 1 
    • The steep upward move in short rates left 30-year yields below those on 5-year notes, signaling the risk the central bank’s tightening will starkly slow economic growth or set off a recession. 
  • As discussed, recent data confirms that institutional investors have continued to decrease equity exposure just as various other hedge funds have cut leverage/exposure notably in recent months.1
    • Retail/traditional asset management remains long relative to consumer sentiment. 1 

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

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

 1 Source: Bloomberg – 6/03/2022  

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