Weekly Market Report: October 14, 2022

It was tough to read last week’s market action, particularly on Thursday’s massive intraday swing in both equity and bond markets. As has been the case, new data on inflation, jobs, and resulting monetary policy remain the primary factors in what has been a very macro driven market this year. The week finished with U.S. and developed international equity markets down approximately 1.5% but emerging markets falling nearly 4% driven by a tough week in Chinese markets. The USD and interest rates both moved higher with the 10yr UST yield closing at the 4% level for the first time since 2008. Commodity markets, particularly energy commodities, fell on global growth concerns leaving WTI crude oil at the $85bbl level.

Market Anecdotes

  • Equity markets bounced pretty decisively off a low Thursday morning and maintained throughout the afternoon and while rates followed the same path, bonds did not fully recoup early losses and saw notable upward rate pressure, particularly on the short end of the curve.
  • With equity markets down 25% and bond markets down 15% the right question to be asking might be where we are in respect to financial market capitulation than whether and when the economy will go through a recession.
  • This week’s AAII sentiment survey, not surprisingly, ranks among the 60 lowest in the survey’s history (1987) and has seen less than 35 readings more bearish than last week’s 55.9%.
  • With the midterms approaching, a brief reminder of election cycle theory serves up some constructive anecdotes as we approach the beginning of year three.
  • A snapshot of strong U.S. corporate fundamentals is clear as we began 3Q earnings season last week with margin compression and slowing growth at the forefront of guidance.
  • FOMC minutes released last week made clear the Fed’s consensus is that inflation risks outweigh over tightening risks.
  • Inflation and jobs data are the primary market focus and while inflation did surprise on the upside last week, several inflation data points are beginning to trend lower – a very important anecdote when thinking about the future path of the economy and U.S. monetary policy.
  • With the Atlanta Fed GDPNow model predicting +2.8% 3Q GDP for the U.S. economy, it feels like a relatively healthy economy & labor market for the FOMC to materially reconsider its policy path at this time.
  • A look at the past few months of Fed quantitative tightening makes the downshift clear in terms of net Treasury supply purchases by the Fed.
  • A UN resolution calling on countries not to recognize Russia’s annexation of Ukrainian territories saw 143 vote in favor, 5 opposed (Russian, North Korea, Belarus, Syria, Nicaragua), and 2 abstain (China, India).

Economic Release Highlights

• YoY headline (8.2%) and core (6.66%) CPI decreased and increased respectively from prior month readings and came in slightly higher than consensus.
• YoY headline (8.54%) and core (7.25%) PPI as well as MoM headline (0.38%) and core (0.30%) have begun to show signs of relief.
• September retail sales were flat (0.0%) while sales excluding gasoline and autos grew by 0.3%.
• UofM Consumer Sentiment reading for October of 59.8 represented a small improvement over prior month’s reading of 58.6.
• The NFIB Small Business Optimism Index rose 0.3 points over the prior month to 92.1.
• Weekly unemployment claims of 228,000 were slightly higher than expected and the 4-week moving average of 211,500 edged slightly higher.

This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
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