Weekly Market Report: October 21, 2022
A subtle, softer, gentler Fed narrative last week provided a helping of comfort food for equity markets leading to a strong 4.75% gain in the S&P 500 while international markets enjoyed gains of over 3% as well. Unfortunately, while equity markets giveth, bond markets taketh with three month and 20-year yields both rising close to 30bps on the week leaving the 10yr UST well above the 4% level. Commodity markets were relatively flat where oil held at $85 but natural gas fell 23%. The USD finally took a breather last week, falling 1.15%, but remains up nearly 20% over the past year.
- Cheers to the weekend? Friday’s big gain heading into the weekend has been the exception this year given we haven’t seen as many -1%+ Fridays any year since 1952.
- The exceptional move higher in interest rates, now at a record 12th consecutive weekly increase, has resulted in extraordinary bond market losses but Bloomberg made special note of how (short term) oversold things may have become. Stock market is clearly not appreciating the move higher in yields.
- With 20% of S&P 500 companies reported, earnings growth sits at 1.5% with a beat rate of 72% and beat margin of 2.3%. Revenue growth sits at 8.5% with a beat rate of 70% and beat margin of 1.3%. Forward guidance has remained relatively sanguine.
- Goldman Sachs made note of emerging market forward P/E multiples at 10.5x sit somewhere between the 2018 and 2008 bear market levels. Meanwhile, many emerging market central banks are looking at rate cuts with much more manageable inflation levels. U.S. small caps P/E ratios also look very cheap relative to their
large cap peers.
- While recessions clearly impact demand for goods and services, Arbor Data Science highlighted demand for oil declines as well – something FOMC policy makers are certainly aware of.
- Nearly ½ of Americans have looked for a second job to keep up with inflation in what is likely a significant midterm election cycle consideration.
- Japanese Yen weakness (vs USD) is every bit as historical as USD strength with the Yen/USD down nearly 50% so far this year. Persistent BoJ dovish policy has much to do with this trend.
- The pain that 20-year high mortgage rates have inflicted on the housing market is clear with prices, transaction volume, and home builder sentiment all falling significantly.
Economic Release Highlights
• October’s Housing Market Index fell from 46 to 38, well below consensus forecast of 44.
• Housing Starts (1.439M) and Permits (1.564M) in September were relatively in line with expectations.
• Existing Home Sales in September of 4.71M came in slightly higher than the 4.695M consensus estimate.
• September’s Industrial Production (0.4% vs 0.1%) and Manufacturing Output (0.4% vs 0.2%) reports both exceeded consensus estimates.