Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data  

  • U.S. equities ended the week lower as recession concerns seemed to take hold of investors.
    • S&P 500 -3.35% Dow -2.77%, Russell 2000 -5.01%, Nasdaq -3.99%1
      • The All-Country World Index declined -2.29%.1
    • S&P 500 sub-sectors ended the week all lower.
      • Utilities was the best performer at -0.28%.1
      • Energy led to the downside with a loss of -8.45%.1
    • The CBOE Volatility Index (VIX) shot higher by 20% to end at 22.83. 1
  • US Treasury bond yields were mostly higher last week.
    • US 2yr +0.05% at 4.33%, 10yr +0.06% to 3.57%, 30yr flat to 3.56%.1
    • The recent rally in the bond markets took a breather ahead of the Fed this week.
  • Commodities as an aggregate asset class were lower last week.
    • WTI Crude sank 10% for its biggest declined since April. 1
    • Gold was flat. 1
    • The US Dollar index rose 0.36%.1
  • In our opinion, U.S. economic data was mixed last week.
    • Wholesale prices on Friday came in higher than expected at a monthly gain of 0.3%.1
    • The services sector PMI ticked higher last month to 56.5 on seasonal momentum. 1
    • Consumer credit exploded higher with card balances jumping 15% since last year. 1
  • An index of equities outside the US (FTSE All-World ex-US) lost -1.44%.1

Conclusion

  • US Equities finished the week lower after hitting some technical levels we’ve discussed.
    • Investors seemed to turn their attention back to sticky inflation and recession fears for 2023.
    • All eyes are squarely on the Federal Reserve this week as their 2 day meeting begins and they’ll announcement of their latest policy move.
    • The Nasdaq & small-cap tracking Russell 2000 led to the downside once again after leading the charge higher of late. 1
  • S&P 500 sub-sectors were all down this week.
    • Defensive sectors outperformed but were still down. (Staples, Utilities, Healthcare) 1
    • Energy led to the downside by a wide margin. 1
      • As discussed recently, the gap between WTI Crude & the energy sector was becoming historically large and a “catch-down” in the energy sector was possible.
  • Commodities were lower last week.
    • Despite OPEC maintaining production cuts & the Keystone Pipeline shutting down, crude tumbled last week on the back of weak global economic prospects & waning demand. 1
    • Precious metals were the best performers last week as the real interest rate backdrops could be shifting to (finally) benefit them.
  • US Treasuries took a breather from their recent run higher.
    • The Friday PPI report showing wholesale prices ticking higher than expected on the back of rising food costs seemed to take yields up.
  • All eyes are on CPI data & the Fed this week with most expecting a smaller 0.50% rate hike. 1
    • Such a move — widely flagged by officials — would lift rates to a 4.25% to 4.5% target range, the highest level since 2007. 1
    • They’re also likely to signal another 0.50% of tightening next year, according to economists surveyed by Bloomberg, and an expectation that once they reach that peak, they’ll stay on hold through all of 2023.
      • Financial markets agree on the near-term vision, but see a rapid retreat from peak rates later next year.
    • This clash could be because investors expect price pressures to ease faster than the Fed, which worries inflation will prove sticky.
    • Over the last five interest rate cycles, the average hold at a peak rate was 11 months, and those were periods when inflation was more stable.
      • This is the big divergence right now between the market & the Fed…when will they cut interest rates & how much earnings damage will their existing rate hikes cause?
    • Market participants are pricing in an economic contraction but not a modest recession…let alone one of more significance.

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

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

 1 Source: Bloomberg – 12/9/2022  

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