Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data  

• U.S. equity indices moved higher last week as investors continue to hold out hope for a Fed pivot.
  • S&P 500 +4.66% Dow +4.89%, Russell 2000 +3.53%, Nasdaq +5.22%1
    • The All-Country World Index gained +3.23%.1 
  • S&P 500 sub-sectors ended the week higher across the board.
    • Energy led the way with a gain of 8%+ followed by 6%+ from Tech & Materials. 1 
    • Utilities, Real Estate, Staples, & Healthcare all returned 2.5% or less. 1 
  • The CBOE Volatility Index (VIX) moved lower by 7% to end below 30 @ 29.71. 1 
• US Treasury bond yields moved higher for the 12th consecutive week.
  • US 2yr flat at 4.47%, 10yr +0.20% to 4.21%, 30yr +0.32% to 4.30%.1 
  • All major US Treasuries ended the week yielding north of 4% for the first time since 2007. 1 
• Commodities as an aggregate asset class were mixed last week.
  • WTI Crude was flat at -0.65%.1 
  • Gold rose +0.74%.1 
  • The US Dollar index sank -1.24%.1 
• In our opinion, U.S. economic data was mixed last week.
  • US industrial production increased 0.4% in its latest release despite manufacturing slowing. 1 
  • Home builder sentiment fell to 50% of its level just 6 months ago. 1 
  • The labor markets stayed resilient as unemployment claims were less than expected. 1 
• An index of equities outside the US (FTSE All-World ex-US) rose 3.34% helped by the USD weakening. 1 

Conclusion

• US Equities finished the week very strong as a large options expiration as well as new hope for the Fed pivoting appeared on Friday.
  • An article from the Wall Street Journal on Friday from the reporter nicknamed “The Fed Whisperer” hinted at Fed officials considering a reduction in the pace of their hikes.
    • This same comment has been offered by various Fed officials in talks since their last meeting and is very data dependent. i.e. – They’re not going to pivot just because the markets are down a bunch. 
  • The US Dollar also pivoted following this news and headed lower by almost 2% on Friday. 1 
  • We believe the large options expiration also helped fuel the Friday spike as some investors are positioning to take advantage of a short-term run-up in equities. 
• S&P 500 sectors finished the week higher across the board.
  • Energy led to the upside followed by the most beat-up area of the market so far in ’22, Tech. 1
    • Interesting to note strength from Semiconductors in a week when the US gov’t further restricted their ability to sell to China & a major producer shut down a key chip plant. 
• US Treasury yields continued their recent strong move higher with the entire maturity curve ending the week yielding more than 4%.1
  • The 10yr & 30yr moved higher by 0.20% & 0.32% respectively while the 2yr was flat. 1 
  • Last week’s steepening supports our view that the short end of the curve offers value, while further out, the demand backdrop remains unsupportive. 
  • There is a large amount of uncertainty in fixed income markets currently.
    • The Move Index tracks the volatility of the bond market as it currently at levels not seen since briefly in 2020 and during the financial crisis of ’08-’09. 1 
  • The uncertainty was underscored Friday, when 2-year Treasury yields rose, only to tumble as much as 0.16% after the Wall Street Journal report. 1 
  • We reiterate our opinion that any sustainable move higher in equities will most likely only come after the credit markets stabilize. 
• Non-US equities moved higher last week as the weakening US Dollar seemed to give them some fuel.
  • • The Chinese Communist Party re-elected Xi Jinping to a 3rd term as its leader. 1Additionally, China delayed their release of quarterly GDP numbers last week in a fairly unheard of decision. 1 
  • With Xi’s grip on China strengthening at a time when their growth is slowing, investors in Emerging Markets may begin to look elsewhere. 
• Earnings season is upon us with 20% of S&P 500 companies reporting thus far. 1
  • So far, 72% of companies have beaten their earnings expectations & 70% have reported higher than expected revenues. 1 
  • The S&P 500 blended earnings growth rate is currently at 1.5%.1 
  • Net profit margin is currently at 12% which if it holds, would be the 5th consecutive quarter that the profits for S&P 500 index constituents have declined. 1 
• We continue to urge patience with investors as volatility in daily price movements don’t show any signs of slowing down. 

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 10/21/2022  

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