Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data  

• U.S. equity indices finished last week mostly lower as volatility persisted.
  • S&P 500 -1.42% Dow +1.15%, Russell 2000 -1.07%, Nasdaq -3.11%1
    • The All-Country World Index declined -2.05%.1 
  • S&P 500 sub-sectors ended the week mostly lower.
    • Consumer Staples, Healthcare, & Financials were the lone positive sectors. 1 
    • Tech & Consumer Discretionary led to the downside with losses over 3%.1 
  • The CBOE Volatility Index (VIX) gained slightly last week, finishing at 31.93. 1 
• US Treasury bond yields were up last week as data showed pesky inflation & resilient labor market.
  • US 2yr +0.19% at 4.49%, 10yr +0.13% to 4.01%, 30yr +0.14% to 3.98%.1 
  • The benchmark 10-yr yield reached the highest level since 2007. 1 
• Commodities as an aggregate asset class were lower last week.
  • WTI Crude lost -7.67%.1 
  • Gold declined -3.02%.1 
  • The US Dollar index rose 0.42%.1 
• In our opinion, U.S. economic data was mixed last week.
  • September CPI inflation data came in higher than expected. 1 
  • Retail sales came in worse than expected in the most recent data release. 1 
  • US small business confidence improved slightly last month as labor shortages improved. 1 
• An index of equities outside the US (FTSE All-World ex-US) ended down -2.30%.1 

Conclusion

• US Equities completed a rollercoaster of a week mostly in negative territory.
  • Thursday saw stocks open 2% down only to finish in positive territory by over 2%.1
    • This type of intraday volatility is rare and is even more rarely indicative of a healthy economic backdrop. 
  • The growth-oriented Nasdaq led major domestic indices lower, closing down over 3%.1
    • Longer maturity interest rates moving up puts pressure on these types of companies as future earnings look less and less appetizing in a higher rate environment. 
  • The S&P 500 closed the week below its June lows while the Dow Jones Industrial Average squeaked out a positive end. 1 
• S&P 500 sectors finished the week mostly lower.
  • Defensive Consumer Staples & Healthcare led sectors higher while Financials also finished positive on the back of good earnings.
    • We remain suspect of Financials as forward outlooks are looking softer while banks as a whole are also currently projecting much higher expectations for loan losses into ‘23. 1 
  • Tech & Consumer Discretionary led to the downside. 
• US Treasury yields continued their recent strong move higher as recent data continued to show a resilient labor market, a hawkish Federal Reserve & higher than expected inflation.
  • The 2yr yield touched 4.5% and the 10yr hit over 4%; both for the 1st time since 2007. 1 
• As we continue to point out, the higher yields go, the more troubling things get for the global economy.
  • New research by Bloomberg Economics suggests that several major economies are on an “unsustainable debt trajectory, unless they make painful budget cuts.” 1 
  • For the Group of Seven nations, interest payments on debt are on track to reach 3.6% of economic output by 2030, more than double the pre-pandemic level, the study finds. 1 
  • The US ran the world’s biggest budget deficit during the pandemic & also is pulling back faster than many peers.
    • As an oil and gas-producing giant, which earns more from exports as prices surge, the US isn’t facing the kind of crunch that’s pushing energy-importing Europe toward stimulus. 
• Recent data continues to point to the Federal Reserve maintaining their aggressive rate hiking plan.
  • For the past year and a half, doves/perma-bulls have repeatedly found novel ways to argue for a less aggressive Fed policy. (“the pivot”)
    • Inflation has been pinned on a jump in used-car prices, then surging commodity costs after Russia’s invasion & lately it’s been attributed to shelter costs, an area of the CPI report with a well-documented and significant lag relative to market prices. 
  • For better or worse, we believe the inflation problem runs deep, and the Federal Reserve won’t back off its interest rate increases until policymakers think they’ve weeded it out of the various nooks and crannies of the US economy. 
• All eyes will be on various blue-chip earnings reports this week as well as a bevy of economic data releases & Federal Reserve member speeches.
  • We continue to urge caution and patience as things slowly start to reshape in the markets. 

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 10/14/2022  

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