Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data 

• U.S. equity indices finished firmly higher for the 4th straight week.
  • S&P 500 +3.20% Dow +2.92%, Russell 2000 +5.01%, Nasdaq +3.08%1
    • The All-Country World Index moved higher by 2.82%.1 
  • S&P 500 sub-sectors were all higher last week.
    • Energy led with a gain of 7% followed by Materials & Financials gains of 5%+.1 
    • Healthcare & Staples were the worst performers with gains under 2%.1 
  • The CBOE Volatility Index (VIX) moved lower by 8% for it’s 8th weekly decline in a row. 1 
• US Treasury bond yields rose slightly across the board last week.
  • US 2yr +0.02% at 3.24%, 10yr +0.01% to 2.85%, 30yr +0.05% to 3.12%.1 
  • The curve steepened slightly while the 2/10yrs remain deeply inverted. 
• Commodities as an aggregate asset class were higher last week.
  • WTI Crude gained 3.16%.1 
  • Gold rose 1.5%.1 
  • The US Dollar index sank -0.89%.1 
• In our opinion, U.S. economic data was mixed last week.
  • Both Consumer & Producer measures of inflation came in better than expected. 1 
  • Consumer Sentiment lifted to a 3-month high. 1 
  • Worker productivity dropped for the 2nd quarter in a row as labor costs were a drag. 1 
• An index of equities outside the US (FTSE All-World ex-US) rose 2.77%.1 

Conclusion

• US Equities were strong across the board last week as equities rose for the 4th week in a row.
  • The small-cap tracking Russell 2000 led domestic indices higher. 
  • The S&P crossed a major milestone last week as it has now recovered half of the losses from its steep drop this year. 1
    • In of itself, this can be a bullish, technical signal of market recovery. 
  • The first significant downside US inflation surprise of the cycle seemed to be enough to jolt the markets out of a summer lull.
    • While the CPI inflation rate came in at +8.5%, below expectations, we remind readers that this is the same increase when the markets reacted very negatively in March. 1 
• Data suggests this most recent rally in equities has been largely about institutional investor short covering of their 1st half investing themes.
  • The most institutionally shorted stocks were down 37.9% in the 1st half of 2022 while quarter to date they are higher by 38.5%.1
    • The S&P 500 was down 20.1% in the 1st half and has bounced back 13% since July 1st. 1 
  • Only 2 instances of this level of short-covering from institutional investors exist since 2012. 1
    • This points to continued patience until economic data starts to point towards stability. 
• US Treasury yields rose slightly last week as bond market volatility came down.
  • The bond market seems to have discounted the softening of the CPI & PPI inflation gauges and believes the Fed will continue on its rate hiking plan. 
  • If the lows are truly in for stocks, then this will be the first time in history that a monetary policy driven correction seen the 10-year rate make new highs after the bottom in stocks. 1 
  • The Federal Reserve will release the minutes from its July 27th meeting this week and the markets will be digging for clarity on the path forward for the Fed. 
• The US Dollar index declined last week in a welcome sign for multinational corporations & foreign investments.
  • The All-World ex-US stock index had one of its best weeks in months with a gain of 2.77%.1 
  • The US Dollar has been helped over the last 12 months by a range of items including the slowdown in global growth momentum alongside policy tightening, overall tighter financial conditions, and relative US real yield outperformance.
    • If inflation softens and financial conditions loosen up, this could lead to the US Dollar coming down further and boosting equity markets around the globe. 
• The Chinese economy continues to face various headwinds.
  • Recent retail spending data came in below expectations in the mainland prompting their central bank to quickly cut interest rates to try and stabilize their economy. 1 
  • China’s economy was supported during the pandemic-era by their exports which seem to be rolling over now while they also battle a real estate crisis. 
  • This coincides with inventories at companies in the S&P 500’s consumer sectors rising by 25% over the last 1 year while also seeing consumer’s shift their spending to services from goods. 1 

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

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

 1 Source: Bloomberg – 8/12/2022  

Disclosures: The information provided in this paper is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal or tax advice. Capital Investment Advisory Services, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of or reliance on the information. This information is subject to change and, although based on information that Capital Investment Advisory Services, LLC considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data suppliers. For investment related terms definitions, please visit: www.investopedia.com Past performance is no guarantee of future results. Additional information about CIAS and its Form ADV Part 2A are available on the SEC’s website at www.adviserinfo.sec.gov Advisory services through Capital Investment Advisory Services, LLC Securities may be offered through Capital Investment Group, Inc. Member FINRA/SIPC Both firms located at 100 E. Six Forks Rd. Suite 200, Raleigh, NC 27609 919-831-2370