Weekly Market Report: August 26, 2022
Markets returned their focus to the macro backdrop last week and didn’t applaud what they saw and heard. We saw a relatively packed (and weak) economic calendar punctuated with the KC Fed Jackson Hole Economic Symposium where central bankers, academics, economists, and policy makers rubbed elbows and waxed poetic. By week’s end, U.S. equity markets had fallen between 3%-4% while emerging (+0.28%) and developed (-3%) international markets held up slightly better. Interest rates and the USD responded to hawkish Fed commentary with rates moving rates higher in the shorter maturities and an ensuing bid for the USD. Commodities rallied (+2.8%) with energy, grains, and metals strengthening across the board.
- With all the hullabaloo, Bloomberg News made clear history’s suggestion that Jackson Hole speeches rarely mark a policy shift/turning point for the markets. That said, Powell and company certainly did a number last week.
- The tenuous dance between the Fed and markets with slowing inflation readings pulling dovish market sentiment to levels the Fed seems determined to push back on for now. Market based monetary policy expectations shifted last week accordingly.
- The ‘year of the 60/40 portfolio continues to deliver with both stock and bond markets both sitting over 10% in the red YTD and very little company from a misery loves company perspective.
- After rejecting the 200dma last week, U.S. equity markets continued their retreat closing just above the 50 dma and feeling the pinch of higher rates and monetary policy headwinds. Deteriorating sentiment, however, should be viewed as a constructive contrarian indicator.
- Fundamentals surrounding earnings and profit margins reinforce a note of caution with respect to the forward outlook and trends respectively.
- Monday marked the first time in twenty years where a USD was worth more than a Euro.
- Softness in the housing market from exuberant levels of late 2021 to early 2022 is apparent. Bianco Research examined several alternative measures also illustrative of both pricing trends and the technical backdrop.
- A look at narrow market leadership and average correlations among stocks within the S&P 500 illustrate some of the primary headwinds for active managers in place since the GFC and era of central bank intervention policies.
- China announced a $150bn stimulus package last week resulting in some positive momentum in emerging markets. Whether that’s material enough to matter remains the key question.
Economic Release Highlights
- July MoM PCE Inflation of headline (-0.1% vs 0.1%) and core (0.1% vs 0.3%) and YoY headline (6.3% vs 6.3%) and core (4.6% vs 4.7%) both came in slightly below estimates.
- July Personal Income (0.2% vs 0.6%) and Personal Consumption Expenditures (0.1% vs 0.4%) both came in softer than expected.
- August U.S. PMIs (C, M, S) continued to contract in August with readings of 45.0, 51.3, 44.1, all missing and coming in at or below the lowest end of consensus range.
- August EZ PMIs (C, M, S) of 49.2, 49.7, 50.2 all came in slightly higher than consensus while Japan’s readings of 48.9, 51.0, 49.2 moved slightly lower versus the prior month.
- July New Home Sales (511k) came in under consensus of 575k and below the low end of the range of forecasts. July Pending Home Sales of -1% was slightly better than -2.5% forecasted.
- The final UofM Consumer Sentiment Index for August was revised notably higher to 58.2, well above the point estimate of 55.1 and range of 55.1–56.0.
- July Durable Goods Orders (0.0% vs 0.5%) missed on the headline but beat on the ex-transportation (0.3% vs 0.1%) reading and core capital goods posted growth of 0.4%.