Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data  

• U.S. equity indices moved lower on the week as the Fed continued their aggressive rate hikes.
  • S&P 500 -3.26% Dow -1.38%, Russell 2000 -2.45%, Nasdaq -5.61%1
    • The All-Country World Index gained -1.42%.1 
  • S&P 500 sub-sectors ended the week mostly lower.
    • Industrials, Energy, Materials were the only positive sectors. 1 
    • Technology & Consumer Discretionary led to the downside with losses over 5%.1 
  • The CBOE Volatility Index (VIX) sank lower by 4% to end at 24.55. 1 
• US Treasury bond yields shot higher on the week following the Fed raising rates again.
  • US 2yr +0.25% at 4.66%, 10yr +0.15% to 4.17%, 30yr +0.12% to 4.27%.1 
  • The Fed drove the 2yr higher as they reiterated their “higher for longer” messaging. 
• Commodities as an aggregate asset class were mixed last week.
  • WTI Crude gained 5.12%.1 
  • Gold rose 2.17%.1 
  • The US Dollar index was flat on the week. 1 
• In our opinion, U.S. economic data was mixed last week.
  • The biggest economic news of the week was the Fed hiking rates another 0.75% as expected. 1 
  • The latest jobs reports came in stronger than expected. 1 
  • Job openings also rose as wage growth remained high. 1 
• An index of equities outside the US (FTSE All-World ex-US) gained 2.37%.1 

Conclusion

• US Equities started November with a firm move lower in major indices as Tech continued to lead to the downside.
  • All eyes were on the Fed as they hiked rates by 0.75% as expected. 1 
  • The big news was Federal Reserve Chairman Powell’s news conference where he dashed many market participants hopes for them to pivot from aggressive tightening of financial conditions. 
  • The Tech heavy Nasdaq led to the downside with a loss of over 5%.1 
• S&P 500 sectors finished the week mostly lower.
  • Fueled by a hope for China reopening, Industrial, Materials, & Energy ended the week positive. 
  • The heavy growth oriented sectors of Technology, Consumer Discretionary, & Communication Services led to the downside with losses over 5%.1 
• US Treasury yields spiked higher across maturities following the Fed’s announcement & press conference.
  • The 2yr maturity led the rise in yields as it is most responsive to the Fed’s policy.
    • This is consistent with market participants now anticipating a higher final rate by the Federal Reserve. 
  • With strength in the labor market continuing, the longer maturities are now also pricing in the possibility of higher rates for longer in response to inflation staying elevated. 
• Non-US equities moved higher last week as the US Dollar sold off sharply on Friday with yet more “China Hopes”.
  • We reiterate that if your bull case is the Chinese Communist Party doing what you think they should do, we encourage further digging into the subject matter. Chairman Powell made sure to convey once clear message: We will get it done, whatever it takes.
    • “It’s very premature to think about a pause in our interest rate hiking cycle’’. 1 
    • ‘‘The incoming data since our last meeting suggest the terminal rate of Fed Funds will be higher than previously expected (4.63%), and we will stay the course until the job is done’. 1 
    • As we wrote in July, our takeaway is very clear that the Fed would rather “break” risk assets further and then “fix” them once actual inflation is down. They don’t want to stop short & cause a massive rally in risk assets that in part helps inflation become ingrained. Period. 
    • We reiterate our opinion that now is the time for investors to stay patient and defensive as opposed to trying to call “a bottom” in equities or tell a hopeful story. 
• Earnings season is in its final stages with 85% of S&P 500 companies having reported 3rd quarter results.
  • 70% have reported positive earnings results & 71% have beaten revenue expectations. 1 
  • The current earnings growth rate is at 2.2% for the S&P 500. 1 
  • As a reminder, despite the decline in equities, valuations are just now back to historical averages that existed during lower rate environments. 
  • Historically, when earnings momentum hits zero, it tends to accelerate downward quickly. 
  • We continue to watch Consumer Discretionary earnings as they tend to lead the overall S&P 500 into lower earnings regimes.
    • As to the consumer, recent data continues to show a severe decline in aggregate excess savings and a negative savings rate on top of credit utilization hitting all-time highs. 1 

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 11/04/2022  

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