Market Down and Dirty
Last Week’s Economic/Market Summary
Data
- U.S. equity indices ended the week lower for the 3rd straight week.
- S&P 500 -3.22% Dow -2.85%, Russell 2000 -4.70%, Nasdaq -4.21%1
- The All-Country World Index sank -3.45%.1
- S&P 500 sub-sectors were all lower last week.
- Utilities & Healthcare were the only sectors down less than 2%.1
- Technology & Materials led to the downside with losses around 5%.1
- The CBOE Volatility Index (VIX) was flat to slightly down, finishing at 25.43. 1
- S&P 500 -3.22% Dow -2.85%, Russell 2000 -4.70%, Nasdaq -4.21%1
- US Treasury bond yields were mixed as the short-end was flat & long maturities rose.
- US 2yr flat at 3.38%, 10yr +0.15% to 3.19%, 30yr +0.13% to 3.34%.1
- The Treasury market is down over 10% in ’22; on pace for its worst year since 1971. 1
- Commodities as an aggregate asset class were down last week.
- WTI Crude declined 6.47%.1
- Gold declined 1.52%1
- The US Dollar index rose 0.72%.1
- In our opinion, U.S. economic data was mixed last week.
- All eyes were on jobs reports as US employers added more than expected. 1
- The participation rate increased along with wages & job openings. 1
- Consumer confidence unexpectedly rose in August thanks to falling gas prices. 1
- An index of equities outside the US (FTSE All-World ex-US) dropped -3.43%.1
Conclusion
- US Equities finished lower for the 3rd consecutive week as the global economy remains jittery and the US job market showed little signs of weakening.
- As unemployment remained low, participation improved, wage inflation moved higher & job openings increased, market participant’s hope for the Federal Reserve pivoting off their pace of rate hikes were dashed.
- This data seemed to keep upward pressure on interest rates and sent equities lower.
- Growth oriented equities led to the downside as higher longer-term interest rates over proportionately effect their forward multiples/share prices.
- As unemployment remained low, participation improved, wage inflation moved higher & job openings increased, market participant’s hope for the Federal Reserve pivoting off their pace of rate hikes were dashed.
- All S&P 500 sectors ended the week lower as losses were extremely broad-based.
- The technology sector led to the downside with a loss over 5%.1
- Semi-conductors were under pressure as the US will begin to limit their exports. 1
- Materials were the 2nd worst performer at -4.89%.1
- We believe this is primarily driven by concerns that the global economy is slowing more than expected & that China won’t provide the counter-cyclical stimulus (demand) as in past times of US economic softening.
- The technology sector led to the downside with a loss over 5%.1
- Longer dated US Treasury yields moved higher while the 2yr ended flat. 1
- This steepening of the yield curve could indicate market participants are beginning to think higher inflation will stick around longer than has been expected.
- The 2yr US Treasury hit its highest level since 2007 on Thursday at 3.55% before moving lower after the jobs report on Friday. 1
- We remind readers that the 2yr rate is primarily influenced by the Federal Reserve’s interest rate policy.
- If a new, higher range for longer term US Treasury rates is upon us, the “buy tech on the dip” approach to “investing” could be at risk.
- With Tech being 27% of the S&P 5001, if investors at large ever start puking mega-cap tech names, downward pressure on equities at large could be substantial.
- While this is hard to envision for many, we encourage folks to look back over the history of the S&P 500’s biggest weighting and the fact the largest capitalization companies/sectors don’t remain at the top forever.
- We’re not saying Tech’s run is over…however…if longer-term interest rates enter a new higher range, this could be a catalyst to an adjustment to the sector’s dominance.
- International equities also moved firmly lower last week as the US Dollar made new weekly highs. 1
- China is facing additional headwinds as its currency tumbled to a 2 year low. 1
- Their weakening currency puts immense pressure on emerging market economies that are already battling a stronger US Dollar and elevated inflation.
- China is facing additional headwinds as its currency tumbled to a 2 year low. 1
- Energy markets were lower last week, but they might not stay that way.
- OPEC+ meets this week and has already suggested a dislocation between demand & the price of oil as a result of speculation by traders. 1
- Natural gas is poised to move higher this week after Russia delayed flows to Germany. 1
Ryan A. Mumy, CFP®,
AIF® – Chief Investment Officer
Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net
1 Source: Bloomberg – 9/2/2022
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