Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

 Data 

• U.S. equity indices bounced around last week yet finished mostly higher.
  • S&P 500 +0.36% Dow -0.13%, Russell 2000 +1.90%, Nasdaq +2.15%1
    • The All-Country World Index moved higher by 0.28%.1
  • S&P 500 sub-sectors were mixed last week.
    • Tech led by a wide margin with a gain of 1.94%.1
    • Energy led to the downside with a loss of 6.81%.1
  • The CBOE Volatility Index (VIX) declined 0.84% to end at 21.15. 1
• US Treasury bond yields skyrocketed higher last week across the maturity curve.
  • US 2yr +0.34% at 3.22%, 10yr +0.20% to 2.84%, 30yr +0.15% to 3.07%.1
  • The yield curve inverted further, to its widest margin in 22 years. 1
• Commodities as an aggregate asset class were lower last week.
  • WTI Crude dropped 10.36% on the week on improving supply signs. 1
  • Gold ended up 0.46% after suffering a 1% drop on Friday. 1
  • The US Dollar index rose +0.62%.1
• In our opinion, U.S. economic data was mixed last week.
  • OPEC+ agreed to boost production slightly while US gas stockpiles unexpectedly rose. 1
  • July non-farm payroll jumped +528k which was more than double the expected amount. 1
  • Manufacturing data cooled in June while new orders shrank & inventories rose. 1
• An index of equities outside the US (FTSE All-World ex-US) underperformed at -0.81%.1 

Conclusion

• US Equities wobbled last week but finished the week mostly positive, led firmly by Tech/Growth.
  • The Nasdaq & small-cap tracking Russell 2000 led domestic indices higher.
  • The S&P was slightly positive while the Dow, lagged down by Energy & Materials, finished with a small decline.
• Interesting to note that the recent rise in both the S&P 500 and Nasdaq from this year’s lows has been inversely correlated to the price of oil.
  • The drop in oil prices has helped fuel lowered expectations for Fed rate hikes and stabilization in the interest rate market. 1
  • A blowout jobs report on Friday that came in double consensus expectations & persistent wage inflation1 seemed to put a damper on the Fed turning dovish and slowing interest rate hikes.
  • We believe the conflicting forces of weaker growth and higher inflation as well as questions as to how the Fed’s reaction function will evolve make for a highly uncertain environment, marked by low conviction and consequently weak risk appetite and high volatility.
• US Treasury yields all rose higher last week on the back of economic news and Fed expectations.
  • The 2yr treasury, most sensitive to Fed policy, skyrocketed higher by 0.34% to end at 3.22%.1
  • A week after expectations for a softer Federal Reserve were fully priced in, the hawks came out in full force.
    • Expectations are now for another 0.75% rate hike by the Fed at their Sept meeting. 1
  • The 10yr & 30yr US treasuries rose as well last week, but the yield curve inverted further.
    • The 0.38% spread between the 2yr & 10yr issues is the largest in over 22 years. 1
    • Historically, this degree of inversion is not bullish for risk assets.
• S&P 500 sector were firmly mixed last week as the latest round of economic data was digested.
  • Tech led to the upside followed by Discretionary, Industrials, & Utilities.
  • Energy led to the downside followed by Materials & Real Estate.
• The spot VIX declined for the 7th straight week to finish just above 21. 1
  • Despite the move lower, we believe it’s important to note that the VIX has failed to get back down to previous lows this year during previous rounds of equity strength.
  • Positioning by institutional investors continue to point to 4,200 being the upper bound of the S&P 500 while a move below 4,075 could bring increased downside volatility. 1
  • Bottom line…the VIX seems to confirm our recent thoughts that while the market has risen from its lows, it remains fairly rangebound.
    • Said simpler…we’re not “out of the woods” yet.
• Earnings season is wrapping up with 87% of S&P 500 companies having reported. 1
  • 75% of companies have reported positive earnings while 70% have beaten revenue expectations. 1
    • The blended earnings growth rate is 6.7%.1
    • Earnings growth has supported the recent equity market rally.
• All eyes have been on 2023 forward guidance.
  • While continue revenue growth is expected, margin contraction is also expected as a result of increased labor costs, strong US dollar, etc. 

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

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

 1 Source: Bloomberg – 8/05/2022  

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