Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

 Data 

•  U.S. equity indices moved higher last week despite rising interest rates.

  • S&P 500 +1.95% Dow +0.77%, Russell 2000 +2.44%, Nasdaq +4.56%1

    • The All-Country World Index was higher by 1.31%.1 

  • S&P 500 sub-sectors were mixed last week.

    • The year-to-date laggards led with Tech & Cons Discretionary gaining over 4%.1 

    • The best performers so far this year led the decliners as Energy & Utilities lost 2%.1 

  • The CBOE Volatility Index (VIX) declined 8% to end below 25. 

• US Treasury bond yields moved higher across the board last week.

  • US 2yr +0.26% at 3.09%, 10yr +0.21% to 3.10%, 30yr +0.15% to 3.27%.1 

  • The 2yr/10yr spread inverted for the longest stretch since 2019 last week. 1 

• Commodities as an aggregate asset class continued their recent move lower.

  • WTI Crude lost 3.48% to end @ 104.66. 1 

  • Gold lost -3.65%.1 

  • The US Dollar index rose 1.67%.1 

• In our opinion, U.S. economic data was mixed last week.

  • The US added more jobs in June than expected at +372k. 1 

  • Wage inflation came in up 5.1% over the last year. 1 

  • Factory orders beat expectations while the services sector slowed. 1 

• An index of equities outside the US (FTSE All-World ex-US) underperformed at -0.26%.1 

Conclusion

• Caution remained for equity markets as domestic indices rose across the board, led by year-to-date underperforming areas.

  • The tech-heavy Nasdaq led domestic markets higher with a gain of 4.56%.1

    • This was despite interest rates exploding higher during the week. 

  • A strong jobs report boosted expectations of the Fed staying aggressive on it’s rate hikes.

    • The Fed’s next policy decision will be on July 27th and according to their June minutes, officials made it clear their next rate hike level is not set in stone. 

    • In our opinion, all eyes remain on the Fed. 

• S&P 500 subsectors were truly mixed last week.

  • Consumer Discretionary & Tech led to the upside with gains of over 4.25%.1

    • The other 3 sectors that were positive gained less than a percent. 

  • Utilities & Energy led to the downside with losses of 2.83% & 2.25% respectively. 1 

  • As price action last week was counter to the predominant trend of 2022, the question remains: 

    • Is the market repricing forward expectations for returns OR are large institutions deleveraging and thereby covering shorts & taking gains from winners? 

• The VIX volatility index declined 8%. 1

  • It remains muted despite the large drawdown in equities. 

  • Interesting to note that the current VIX is trading below historical correlations to the 3 mo expectation for volatility as well as the MOVE index which tracks bond market volatility. 1 

• US government interest rates moved higher across the maturity curve last week.

  • Yields spikes by at least 0.15% across the curve as the 2/10yr inverted. 1

    • This means the 2yr is yielding more than the 10yr. 1 

    • This relationship stayed inverted for 4 days last week for the longest inversion since ’19. 1 

  • We believe Friday’s stronger than expected jobs report fueled concerns that the Fed will have to toughen its hawkish stance to cool a hot labor market as well as inflation.

    • This increases the probability of dragging the US economy into a recession. 

• Commodities continued their recent slide lower last week.

  • We find this latest commodity sell-off de-linked from physical fundamentals and driven by financial liquidation. 

  • Inventories of energy and metals continue to fall from already uncomfortably low levels as demand remains above supply in all cyclical commodities, except iron ore. 1 

  • In our opinion, scarcity thus paints a fundamentally constructive outlook for commodities despite the rising probability of a US and European recession over the coming 12 months. 

• Non-US equities moved lower last week as the US Dollar continued is run higher. 1

  • Chinese stimulus is now taking center stage in the mainland.

    • Stimulus is seen playing a more important role in Chinese authorities’ policy mix this year with local gov’ts facing slumping revenue and bigger spending on Covid controls. 

  • Counter-cyclical stimulus is already starting to show up in some areas of Asia1 as tightening continues from Western governments.

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

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

 1 Source: Bloomberg – 7/8/2022  

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