Market Down and Dirty
Last Week’s Economic/Market Summary
Data
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U.S. equity indices moved higher last week despite rising interest rates.
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S&P 500 +1.95% Dow +0.77%, Russell 2000 +2.44%, Nasdaq +4.56%1
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The All-Country World Index was higher by 1.31%.1
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S&P 500 sub-sectors were mixed last week.
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The year-to-date laggards led with Tech & Cons Discretionary gaining over 4%.1
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The best performers so far this year led the decliners as Energy & Utilities lost 2%.1
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The CBOE Volatility Index (VIX) declined 8% to end below 25.
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US Treasury bond yields moved higher across the board last week.
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US 2yr +0.26% at 3.09%, 10yr +0.21% to 3.10%, 30yr +0.15% to 3.27%.1
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The 2yr/10yr spread inverted for the longest stretch since 2019 last week. 1
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Commodities as an aggregate asset class continued their recent move lower.
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WTI Crude lost 3.48% to end @ 104.66. 1
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Gold lost -3.65%.1
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The US Dollar index rose 1.67%.1
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In our opinion, U.S. economic data was mixed last week.
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The US added more jobs in June than expected at +372k. 1
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Wage inflation came in up 5.1% over the last year. 1
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Factory orders beat expectations while the services sector slowed. 1
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An index of equities outside the US (FTSE All-World ex-US) underperformed at -0.26%.1
Conclusion
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Caution remained for equity markets as domestic indices rose across the board, led by year-to-date underperforming areas.
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The tech-heavy Nasdaq led domestic markets higher with a gain of 4.56%.1
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This was despite interest rates exploding higher during the week.
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A strong jobs report boosted expectations of the Fed staying aggressive on it’s rate hikes.
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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.
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In our opinion, all eyes remain on the Fed.
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S&P 500 subsectors were truly mixed last week.
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Consumer Discretionary & Tech led to the upside with gains of over 4.25%.1
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The other 3 sectors that were positive gained less than a percent.
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Utilities & Energy led to the downside with losses of 2.83% & 2.25% respectively. 1
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As price action last week was counter to the predominant trend of 2022, the question remains:
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Is the market repricing forward expectations for returns OR are large institutions deleveraging and thereby covering shorts & taking gains from winners?
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The VIX volatility index declined 8%. 1
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It remains muted despite the large drawdown in equities.
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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
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US government interest rates moved higher across the maturity curve last week.
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Yields spikes by at least 0.15% across the curve as the 2/10yr inverted. 1
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This means the 2yr is yielding more than the 10yr. 1
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This relationship stayed inverted for 4 days last week for the longest inversion since ’19. 1
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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.
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This increases the probability of dragging the US economy into a recession.
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Commodities continued their recent slide lower last week.
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We find this latest commodity sell-off de-linked from physical fundamentals and driven by financial liquidation.
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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
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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.
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Non-US equities moved lower last week as the US Dollar continued is run higher. 1
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Chinese stimulus is now taking center stage in the mainland.
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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.
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Counter-cyclical stimulus is already starting to show up in some areas of Asia1 as tightening continues from Western governments.
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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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