Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data  

  • U.S. equity indices posted another rough week and volatile trading continued.
    • S&P 500 -2.93% Dow -2.92%, Russell 2000 -1.43%, Nasdaq -2.69%1
      • The All-Country World Index declined -2.60%.1
    • S&P 500 sub-sectors were all lower last week except Energy.
      • Energy led to the upside as the lone gainer with a return of +2.19%.1
      • Utilities & Real Estate led to the downside. 1
    • The CBOE Volatility Index (VIX) gained 5.4% and closed above 30 at 31.53. 1
  • US Treasury bond yields moved higher last week, led by the long-end.
    • US 2yr +0.07% at 4.27%, 10yr +0.10% to 3.80%, 30yr +0.16% to 3.77%.1
    • The 2yr/10yr yield difference came down to 0.47% from a high of 0.58%.1
  • Commodities as an aggregate asset class were firmly lower last week.
    • WTI Crude lost -2.28%.1
    • Gold gained 1.01%.1
    • The US Dollar index declined 0.90%.1
  • In our opinion, U.S. economic data was mixed last week.
    • Labor market data stayed strong despite the Fed’s aggressive hiking. 1
    • The Core PCE inflation gauge came in higher than estimates. 1
    • US home prices tumbled in July at the quickest rate in the index’s history. 1An index of equities outside the US (FTSE All-World ex-US) declined 2.01%.1

Conclusion

  • US Equities declined again last week to close out the worst September in 2 decades.
    • Market volatility seemed to be pressured by the US labor market remaining tight and keeping inflation pressures elevated. 
    • The S&P 500 sank 3% to lead major indices lower while the small-cap tracking Russell 2000 was the best performer at -1.43%.1 
    • Down 25% over nine months, this bear market run is less than half the average duration of the previous 14 down cycles, data compiled by S&P Dow Jones Indices and Bloomberg show.
      • During the previous six bear markets, all bottoms formed when the Fed was lowering rates…not in the middle of an aggressive hiking cycle as they are now. 
  • All S&P 500 sectors ended the week lower outside of Energy.
    • Energy was positive on the week even though WTI Crude oil was down 2%+.1
      • Oil prices have dropped notably on the outlook for diminished demand due to a slowing global economy, yet longer term, significant supply side constraints continue to form. 
      • The U.S. has drained the strategic petroleum reserve and OPEC Plus has recently reiterated a commitment to cut supply on a further fall in price. 1 
    • Real Estate, Tech, & Utilities led to the downside as longer-term interest rates led the yield market higher which puts the most pressure on these areas of the market. 
  • The VIX volatility gauge gained for the 3rd straight week to close above the key level of 30. 1
    • The forward structure of the VIX (volatility) curve indicates notable risk off could transpire. 1 
    • From these elevated VIX levels, the fear-gauge will need to mean revert lower or there could be further mass liquidation of stocks. 
  • US Treasury yields continued their recent move higher albeit led by longer dated issues last week.
    • The 10yr & 30yr issues led major Treasury maturities higher with gains of 0.10% & 0.16%.1 
    • The bond market seems to be bracing for more turbulence as a crucial reading on the still-tight US labor market is set to give traders a chance to reassess the Federal Reserve’s commitment to its aggressive path of interest-rate hikes. 
    • Additional pressure on the Treasury bond market is coming from foreign investors selling UST’s in an attempt to support their currencies.
      • Foreign sales of US Treasuries reached almost $40B last week alone. 1 
      • The ongoing appreciation of the USD is causing significant negative pressure globally. 
  • While a lot of market commentary is centering around how “bearish” or “defensive” market participants have become, we’ve found actual data doesn’t support this opinion.
    • The % short positions of the largest domestic equity names remains extremely low. 1 
    • Both hedge funds & mutual fund data shows they remain highly exposed to equities relative to the past decade. 1 
    • Additionally, household equity allocation stand at the 96th percentile since WWII. 1 

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 9/30/2022  

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