Weekly Market Report: November 4, 2022

Markets digested an important FOMC meeting, a healthy dose of economic data, and a heavy dose of third quarter earnings reports last week. By week’s end, U.S. equity markets traded lower with the most pronounced selling in growth stocks while value and cyclical sectors (energy, industrials, materials) held up relatively well. Importantly, non-U.S. (+1.5%) and emerging markets (+5.6%) rallied with China leading the move higher. Yields drifted higher and flatter on the week with the 10yr UST closing at 4.17% while a rally across industrial metals and energy contracts pushed commodity indices higher.

Market Anecdotes

  • The November FOMC delivered the expected 75 bps rate hike last week, taking the Fed Funds rate to 3.75%-4.00%.
  • While the official FOMC statement leaned a shade dovish, the post meeting Powell press conference squashed any early enthusiasm pushing equities lower and bond yields, put/call ratios, and terminal Fed Funds rate expectations higher.
  • Anticipating labor market deterioration and cooling inflation remain the key focus. Insights surrounding the former include October ISM employment data for manufacturing (50.0) and services (49.1) both hovering around neutral, household survey data deteriorating, and corporate layoff announcements beginning to mount.
  • Upward wage pressures seem to be abating with measures from the Atlanta Fed, ECI, regional Fed and NFIB survey data corroborating this trend. ISM Prices Paid subindex this week also signaled contraction.
  • The healthy U.S. consumer underpinning the U.S. economy as a consistent demand driver stands as one of the most important constructive economic considerations in play today.
  • We’re 85% of the way through third quarter earnings with blended growth of 2.2% and beat rates and margins of 70% and 1.9% respectively. Revenue growth of 10.7% has been accompanied by higher beat rates (71%) and beat margins (2.5%) than historical averages.
  • The future of the richly valued USD depends very much on the direction of the U.S. economy while also factoring in geopolitics, technical conditions, and foreign rate differentials.
  • The upcoming midterm elections look likely to result in a Republican control of both the House and Senate next week. From a market perspective, we have three words – gridlock is good.
  • Russia pulled out of its grain deal with Ukraine on Saturday in response to a drone attack in Crimea but agreed to rejoin on Wednesday.

Economic Release Highlights

• The October jobs report revealed 261,000 new jobs, well above the consensus forecast of 210,000 but lower than the prior month. The unemployment rate moved up one tick to 3.7%.
• Average hourly earnings increased MoM (0.4%a vs 0.3%e) and YoY (4.7%a vs 4.7%e).
• October’s ISM Manufacturing Index (50.2a vs 50.0e) softened slightly while ISM Services (54.4a vs 55.4e) missed consensus and fell two points relative to the prior month.
• The September JOLT survey revealed 10.717mm job openings, in excess of the consensus estimate of 9.875 and an increase over the prior month.

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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