Market Down and Dirty
Last Week’s Economic/Market Summary
Data
- U.S. equity indices plummeted on the week following a higher-than-expected inflation report.
- S&P 500 -5.17% Dow -4.13%, Russell 2000 -4.49%, Nasdaq -5.48%1
- The All-Country World Index declined -4.08%.1
- S&P 500 sub-sectors were all lower last week as no areas were spared.
- Losing over 6% were: Industrials, Materials, Real Estate, & Technology. 1
- Energy & Healthcare were the only sectors that lost less than 3%.1
- The CBOE Volatility Index (VIX) gained 15% to end at 26.20. 1
- S&P 500 -5.17% Dow -4.13%, Russell 2000 -4.49%, Nasdaq -5.48%1
- US Treasury bond yields shot higher last week across the yield curve.
- US 2yr +0.31% at 3.86%, 10yr +0.13% to 3.45%, 30yr +0.06% to 3.52%.1
- The 2yr/10yr inversion increased to 0.41%; the highest level in decades. 1
- Commodities as an aggregate asset class were down last week.
- WTI Crude lost -1.67%.1
- Gold sank -2.49%.1
- The US Dollar index rose 0.59%.1
- In our opinion, U.S. economic data was mixed last week.
- CPI inflation came in much higher than expected. 1
- Industrial production & regional manufacturing surveys showed business contracting. 1
- Retail sales & consumer sentiment came in better than expected. 1
- An index of equities outside the US (FTSE All-World ex-US) declined -3.32%.1
Conclusion
- US Equities were thumped last week as inflation is proving to be much stickier than many anticipated.
- The CPI inflation report came out way higher than consensus expectations as falling energy prices failed to offset the huge gains in food & shelter. 1
- This indicates that high prices could stay higher for longer…fueling the Fed to tighten.
- As such, the likelihood of the Federal Reserve continuing their aggressive rate hiking plan much longer than market participants have been anticipating increased.
- Following the inflation report release, equities nosedived and finished one of the worst weeks of the year.
- The Nasdaq led to the downside with a loss of 5.8% for its worst week since January as growth-oriented equities underperformed other areas. 1
- The CPI inflation report came out way higher than consensus expectations as falling energy prices failed to offset the huge gains in food & shelter. 1
- All S&P 500 sectors ended the week all lower as selling seemed to be broad-based, risk-off trading.
- Performance was split into 2 groups…over 6% and under.
- Growth & cyclicals ex-energy lost over 6%.
- The “value factor” sectors of Energy and Financials declined less than “growth factor” Tech. 1
- The Energy and Financial sectors have dramatically outperformed the Tech sector so far in 2022 on a relative basis. 1
- In of itself we do not see this dynamic as a bullish signal.
- Performance was split into 2 groups…over 6% and under.
- US Treasury yields shot higher across the maturity curve last week.
- The short-end 2yr moved higher by a whopping 0.31% as the 10yr rose 0.13% and the 30yr by 0.06%.1
- This further inverted the yield curve as the 2yr yields 0.41% more than the 10yr. 1
- As we’ve been discussing all year, this is not traditionally positive for the current economic backdrop and warranted continued patience.
- While it is not favorable in the short-term for the 2yr US Treasury to go up by that amount, that quickly…the good news is investors are finally able to lock in higher rates on short-term savings.
- The short-end 2yr moved higher by a whopping 0.31% as the 10yr rose 0.13% and the 30yr by 0.06%.1
- All eyes will be on the Federal Reserve this week as they meet and announce their latest policy decision.
- The market anticipates another 0.75% rate hike at this meeting and there’s a case for going even bigger percolating around market participants. 1
- The bottom line is the resilient labor markets & consumer are continuing to drive up prices in various major areas of the economy and the Fed must act to keep inflation from turning into the runaway, hyper-inflation variety.
- As we’ve discussed, with the Federal Reserve tightening, growing company share prices by multiple expansion is off the table for now.
- This leaves earnings growth for equity share prices having a sustained moved higher.
- We’re entering the time of year, when earnings revisions are traditionally of the negative type.
- We’re also seeing the personal savings rate decline and credit use increase at the same time when the avg 30 year mortgage rate eclipsed 6%.1
- Bottom line: While the consumer has helped prolong the economic expansion, these points indicate they might be running out of runway.
Ryan A. Mumy, CFP®,
AIF® – Chief Investment Officer
Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net
1 Source: Bloomberg – 9/16/2022
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