Market Down and Dirty
Last Week’s Economic/Market Summary
Data
- U.S. equity indices were all down last week as inflation continued to weigh on the economy.
- S&P 500 -6.14% Dow -4.73%, Russell 2000 -7.51%, Nasdaq -4.78%1
- The All-Country World Index declined 5.76%.1
- S&P 500 sub-sectors all finished lower last week.
- Energy led to the downside by a wide margin with a loss of 17%.1
- Consumer staples was the best performer at -4.30%.1
- The CBOE Volatility Index (VIX) rose 12.07% to finish at 31.10. 1
- S&P 500 -6.14% Dow -4.73%, Russell 2000 -7.51%, Nasdaq -4.78%1
- US Treasury bond yields were higher last week across the curve.
- US 2yr +0.11% at 3.17%, 10yr +0.08% to 3.24%, 30yr +0.09% to 3.29%.1
- The yield curve flattened as shorter maturities’ yields rose more than the longer ones.
- Commodities as an aggregate asset class were slightly higher last week despite equity weakness.
- WTI Crude sank 8.44%.1
- Gold lost -1.72%.1
- The US Dollar index was up 0.48%.1
- In our opinion, U.S. economic data was mixed last week.
- US Wholesale Prices rose another 0.8% last month and are up 10.8% in the last year. 1
- Retail sales declined in May. 1
- New home construction went down as mortgage rates neared 6%.1
- An index of equities outside the US (FTSE All-World ex-US) went down -4.79%.1
Conclusion
- Equity markets retreated last week, ending in negative territory for the 10th out of the last 11 weeks.
- All eyes were on global central banks as they collectively turned more aggressive in their combat of inflation around the globe.
- We believe that markets continue to digest the potential path of monetary policy and the impact of slowing economy growth.
- The small-cap tracking Russell 2000 led domestic indices to the downside with a loss of 7.51%.1
- The S&P 500 was down 6% and is now trades 24% below it’s January peak. 1
- All eyes were on global central banks as they collectively turned more aggressive in their combat of inflation around the globe.
- S&P 500 subsectors were all lower last week.
- Commodity-based sectors were hit the hardest as Energy was down 17% and Materials 8%.1
- This is a sharp reaction to the fear that a major global recession will quickly erode demand for commodities.
- While we’ve seen an incredibly large drop in the percentage of stocks trading above their 50 day moving average recently, the Energy sector went from 100% being above it, to 0% in one week. 1
- Commodity-based sectors were hit the hardest as Energy was down 17% and Materials 8%.1
- The VIX volatility index ended the week up 12% at 31.10. 1
- Despite a technical bear market in the major indices, the VIX has yet to have a blow-out to the upside and currently remains below recent highs.
- Central Banks around the world last week continued delivering on the hawkish side of things, giving a clear indication of a broad sense of urgency.
- The Federal Reserve delivered a 0.75% rate hike, the largest increase since 1994. 1
- They anticipate another 0.50% – 0.75% hike in July, but gave no guidance beyond that. 1
- We remind readers that in the past, on market negative reactions to policy, the Fed could “talk” the market off of a cliff; this time around with inflationary pressures persisting, the risk for the Fed is not tightening enough.
- US Treasury yields continued their move higher last week.
- The yield curve continued to flatten and move closer to inversion.
- The 10yr UST is now yielding just 0.08% more than the 2 year Treasury. 1
- Additionally, high-yield spreads continue to move higher. 1
- This is the premium investors expect to receive for holding lower credit quality bonds.
- This has been on our radar for some time and while they’re elevated, there is ample room for them to run even higher, squeezing off liquidity from corporate America.
- We continue to watch the energy markets closely as past major recessions have been earmarked by spikes in energy costs.
- Recent data shows that despite the recent Russian invasion of Ukraine, MORE oil has come to market as a result of the release of strategic reserves around the globe. 1
- By the end of the year, we will lose a significant amount of Russian oil and there will be no more/a lot less strategic reserves to release.
- This comes as most producers are at max capacity. 1
- In our opinion, demand will have to come down substantially OR new capacity will need to come online for the energy situation not to get uglier.
Ryan A. Mumy, CFP®,
AIF® – Chief Investment Officer
Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net
1 Source: Bloomberg – 6/17/2022
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