Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data  

• U.S. equities were fueled higher last week by expectations for the Fed to slow their rate hiking pace.
  • S&P 500 +1.14% Dow +0.24%, Russell 2000 +1.33%, Nasdaq +2.09%1
    • The All-Country World Index rose +1.34%.1 
  • S&P 500 sub-sectors ended the week mostly higher.
    • Consumer Discretionary, Healthcare, Materials, & Tech led to the upside. 1 
    • Energy & Financials were the only negative sectors last week. 1 
  • The CBOE Volatility Index (VIX) got slammed again to finish just below 20. 1 
• US Treasury bond yields were lower last week.
  • US 2yr -0.14% at 4.28%, 10yr -0.17% to 3.51%, 30yr -0.18% to 3.56%.1 
  • With the long-end dropping more than the 2yr, the inversion deepened. 
• Commodities as an aggregate asset class were higher last week.
  • WTI Crude rose 5.22%.1 
  • Gold gained 2.43%.1 
  • The US Dollar index declined -1.39%.1 
• In our opinion, U.S. economic data was mixed last week.
  • Non-Farm Payrolls rose more than expected along with wage inflation. 1 
  • US Manufacturing fell into contraction for the 1st time since May 2020. 1 
  • Consumer confidence slipped lower in the latest data. 1 
• An index of equities outside the US (FTSE All-World ex-US) gained +2.27%.1 

Conclusion

• US Equities finished a volatile week higher as investors seemed to latch on to Fed Chair Powell’s comments about “moderation” at his speech last week.
  • The year-to-date laggards led to the upside as the Nasdaq posted a 2%+ return on the week and small-caps gained 1.33%.1 
  • The VIX volatility index got slammed lower to finish below 20 and at it’s lowest levels of ’22. 1 
  • We point out that although the S&P 500 has gained 14% since October1, it remains hard for us to distinguish the latest bull run from the 2 others that fell apart earlier this year. 
• S&P 500 sub-sectors were mostly positive on the week.
  • YTD worst performing sectors of Communications & Consumer Discretionary led to the upside. 1
    • Hard for us to find data to support overweighting the consumer right now and as such we view much of the price action last week as reflexive positioning by institutions. 
  • Energy & Financials were the only negative sectors last week.
    • Energy has been trading at a wide gap from Crude oil and we anticipate this gap closing by either crude catching up or energy equities catching down. 1 
    • Financials are in a tough position being down only 7% YTD while the yield curve continues to invert which has historically not been favorable to the sector. 1 
• The US Treasury market saw yields move lower across the maturity curve last week. 1
  • The 2yr reacted to Jerome Powell’s speech on Weds by plummeting lower…indicating the market is anticipating the Fed to greatly cool their future rate hikes.
    • The 10yr & 30yr sank more in an indication of the market’s cooling expectation for future economic growth & inflation. 
  • The short-end’s yield over the longer maturities increased even more as the inversion grows to levels not seen in a long time. 
• Market participants and the Federal Reserve seem to be seeing two different things.
  • While the market reacted favorably to Fed Chair Powell’s speech on Weds, we feel that he repeated many things he’s been saying for weeks & months. 
  • The non-farm payroll release on Friday showed a stronger labor market than expected. 1
    • The most worrisome aspect of the report was wage growth coming in double expectations at a 0.6% gain. 1 
  • While signs are pointing to inflation dissipating somewhat, the question becomes how much more will the Fed hike and how much damage will this cause to the economy?
    • The market is pricing in one thing while the Fed has consistently said it will keep tightening financial conditions until the “job is done.” 
  • The recent rally in risk assets, fall in the VIX, & tightening of credit spreads have actually loosened financial conditions to being looser than before the last rate hike.
    • This…is the opposite of what the Fed wants to see. 
• Economic data continues to flash possible warning signs.
  • Consumer sentiment reversed course into historically repressed levels. 1 
  • ISM Manufacturing saw both PMI & New Orders come in at contractionary levels. 1 
  • Housing continues to see softening as borrowing costs & inventories have increased. 1 

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 12/2/2022  

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