Market Down and Dirty
Last Week’s Economic/Market Summary
Data
- U.S. equity indices collapsed further last week following the Federal Reserve’s September meeting.
- S&P 500 -4.57% Dow -4.00%, Russell 2000 -6.53%, Nasdaq -5.07%1
- The All-Country World Index declined -5.03%.1
- S&P 500 sub-sectors were all lower last week.
- Energy led to the downside with a loss of 10% as it caught-down to the price of oil. 1
- Consumer Discretionary, Real Estate, Materials, & Financials all lost over 6%.1
- The CBOE Volatility Index (VIX) briefly touched 32 Friday before ending at 29.83. 1
- S&P 500 -4.57% Dow -4.00%, Russell 2000 -6.53%, Nasdaq -5.07%1
- US Treasury bond yields moved higher last week across the yield curve, led by the short-end.
- US 2yr +0.34% at 4.20%, 10yr +0.25% to 3.70%, 30yr +0.09% to 3.61%.1
- Yields all rose to levels last seen more than a decade ago.
- Commodities as an aggregate asset class were firmly lower last week.
- WTI Crude lost -7.01%.1
- Gold sank -1.89%.1
- The US Dollar index rose 2.96%.1
- In our opinion, U.S. economic data was mixed last week.
- The Federal Reserve hiked rates by another big 0.75% increase at their meeting last week. 1
- Homebuilder sentiment fell to the lowest level since ‘14 as home sales came in down 20% YoY. 1
- Flash PMIs contracted for the 3rd straight month. 1
- An index of equities outside the US (FTSE All-World ex-US) sank -6.11%.1
Conclusion
- US Equities sank further last week following the Federal Reserve hiking rates by another 0.75% and signaling their more aggressive pace of hikes will continue.
- The Fed adjusted their projection of reaching a 4.4% level on their Fed Funds rate as opposed to a 3.4% projection at their June meeting. 1
- We believe this, along with their continued hawkish tone, was what primarily drove the accelerated equity sell-off and spiking interest rates last week.
- All major US indices lost at least 4% while the small-cap tracking Russell 2000 led to the downside with a loss of 6.53%.1
- Equities have now fallen by at least 3% in 4 of the last 5 weeks. 1
- Friday saw a rare major distribution day with 90%+ down volume in trading. 1
- The Fed adjusted their projection of reaching a 4.4% level on their Fed Funds rate as opposed to a 3.4% projection at their June meeting. 1
- All S&P 500 sectors ended the week lower as selling was very broad-based.
- Energy led to the downside with a loss of over 10% as the sector followed commodities markets in general lower as investors rushed to shed risk in the face of mounting global recession fears.
- Industrials, Materials, Financials, Consumer Discretionary, & Real Estate all lost over 5%.1
- US Treasury yields shot higher across the maturity curve last week.
- The short-end 2yr moved higher to end at 4.2%.1
- The 2-year finished last week having its yield rise for 12 straight days; this streak of losses hasn’t been seen since 1976. 1
- The current drop in the bond market is truly unprecedented having declined by the most going back at least to the 1960’s.
- The short-end 2yr moved higher to end at 4.2%.1
- The Bloomberg Commodity Spot Index, which tracks futures contracts for everything from oil to copper and cotton, settled 3.1% lower on Friday to a level not seen since July. 1
- The measure has lost more than 20% since peaking in June. 1
- The US Dollar ended the week higher by almost 3% last week. 1
- The US dollar’s march to record highs is a drag on commodities priced in the greenback because it reduces other currencies’ buying power, further eroding the demand outlook.
- Central banks around the globe seem to be racing each other to step up their fight against inflation at the cost of economic growth.
- Worries about whether there will be a recession have turned into bets on just how bad the pain will get just as the 2yr/10yr inverted further last week.
- From a historical standpoint, prior bear markets that hit during full-blown recessions have shown to be brutal for the S&P 500.
- Since World War II, the average decline of the S&P is 35% when these happen in concert. 1
- The Fed will be out in full force this week with talks from various officials.
- The market will be watching for clues as to whether policy makers are leaning towards a 4th blockbuster hike.
- The week is also full of economic data including Friday’s release of the Core PCE Price Index which is a preferred inflation gauge by some Fed members.
- We remind folks that until there is stabilization in the bond & currency markets, any short-term upward price movements in the equity markets should be dismissed.
Ryan A. Mumy, CFP®,
AIF® – Chief Investment Officer
Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net
1 Source: Bloomberg – 9/23/2022
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