Weekly Market Report: June 3, 2022

In a holiday shortened week, markets had to absorb a pretty full economic calendar and the usual dose of geopolitical and policy narratives. By week’s end, investors were left with a counterbalancing sense of slowing global growth crossed with strong job creation, wage gains, and consumer spending. Somewhat surprisingly, equity markets gave back only 1.2% of the prior week’s spectacular 6.6% gain. Bond yields firmly resumed their upward trend with yields climbing 15-25bps across the curve leaving the 10yr UST just shy of the psychological 3% level. Commodity markets continued to exhibit elevated volatility with oil closing up 3.3% to $118, within reach of March’s 14 year record high of $124.

Market Anecdotes

• Interest rates resumed their upward trend last week with a parallel move of nearly 20bps higher in what is still a solid positively sloping yield curve. The month of May wrapped up last week as the official worst YTD bond market on record.
• Aggregate S&P 500 EPS (12mo) of $134.90 is sitting at a record high and has increased 7% YTD priced at trailing and forward P/E multiples of 20.6x and 18.3x respectively. BCA Research made note that the 140bps rise in yields this year coincides with a 22% decline in forward P/E ratios.
• The AAII sentiment survey spiked last week with bullish reads surging from sub-20% to 32% and bearish reads plummeting 16% to 37%. The bull/bear spread, still pessimistic, narrowed to -5.1. Meanwhile, the Conference Board’s CEO confidence level here in 2Q has fallen sharply.
• An interesting ‘quality bias’ anecdote from Prudential last week regarding ‘zombie’ companies in the NASDAQ illustrates how 750 of Russell 3000 companies do not have sufficient earnings to cover interest expenses alone.
• A piece from BoA Merrill last week highlighted the historic record cash balances currently held on bank balance sheets to emphasize pronounced health and quality across the sector.
• While energy markets have continued to rip, metals and grains have reverted meaningfully off the initial ‘Russian invasion’ surge but are still in elevated territory when viewed historically.
• EU oil embargo details were released early last week, sending tremors through energy markets, but OPEC later surprised investors with an unexpected production increase to 648,000bpd in July and another increase in August which essentially restores all pandemic related production cuts.
• While the U.S. housing market has cooled in step with a 2% rise in mortgage rates, it doesn’t give us the sense of any looming issues. Affordability measures and mortgage rate spread to Treasuries provides an encouraging perspective when viewed long term.
• BCA pointed out the slowdown in their Global Leading Economic Index confirms slowing global growth momentum, but the diffusion index appears to have bottomed and is shifting 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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