Weekly Market Report: October 28, 2022

With October drawing to a close, we saw an exceptionally busy week with packed economic and 3Q earnings calendars, equity markets delivered another big week of gains with the S&P 500 +4% and developed international +3.25%. Emerging markets were down 2.75% with Chinese equities wrestling with some of the 20th Communist Party Congress narratives. Interest rates moved lower with the 10yr UST settling just above the 4% level on the back of monetary policy messaging and slowing economic trends. The USD softened last week while commodities moved higher with energy contracts posting strong gains on the week.

Market Anecdotes

  • The sharp equity market rally over the past week plus is difficult to explain but economic slowdown in the U.S. and EU coupled with fresh narratives of the both central banks “stepping down” the scope of future rate hikes is behind the momentum – thanks Nick? 
  • The S&P just made it back to its 50dma but still sits approximately 5% below its 200 dma which was a rather firm resistance level back in August rally back up near the 4,300 level. 
  • The idea of the FOMC considering ‘stepping down’ future magnitudes of rate hikes didn’t impact November market expectations for 75bps but did reopen the door to a mere 50bps in December. The dual mandate of labor market and price stability warrant careful consideration. 
  • The ECB delivered another 75bp rate hike on Thursday as expected and announced changes to the TLTRO facility while the BoJ left policy rates unchanged. 
  • FactSet noted blended third quarter earnings for the S&P 500 sit at 2.5% growth with a blended net profit margin of 12% which would represent a fifth consecutive QoQ margin decline, still above the five-year average margin of 11.3%. 
  • China’s 20th Communist Party Congress was consistent with expectations, reiterating “Common Prosperity” goals of income and wealth redistribution. Additionally, Chinese health officials further tightened Covid health restrictions. 
  • NASDAQ Golden Dragon China index fell 14% in a single trading day last week driven by concerns of Xi power consolidation and potential impacts on domestic Chinese private enterprise.

Economic Release Highlights

 The September PIO report revealed YoY headline and core inflation of 6.2%a vs 6.1%e and 5.1% vs 5.2% alongside MoM readings of 0.3% vs 0.3% and 0.5% vs 0.5%, all in line with expectations.
• The September PIO report showed strong Personal Consumption Expenditures (0.6%a vs 0.4%e) and higher Personal Income growth of (0.4%a vs 0.3%e).
• 3Q Employment Cost Index came in right at the consensus forecast of 1.2% QoQ and 5.0% YoY.
• Third Quarter U.S. GDP accelerated to 2.6% from -0.6% the prior quarter and came in slightly higher than consensus forecast of 2.3% thanks to higher-than-expected Personal Consumption Expenditures of 1.4% versus forecast of 0.8%.
• October’s U.S. PMI report came in below consensus on both manufacturing (49.9 vs 51.2) and services (46.6 vs 49.3) fronts and saw the composite reading decline two points to 47.3.
• PMI reports for most non-U.S. developed markets (EU, Australia, U.K.) deteriorated in October with U.K. and Aussie services dipping into contraction territory. U.K. and Eurozone manufacturing deteriorated as well. However, Japan’s services reading improved to 53.0.
• September Durable Goods Orders missed estimates. New orders increased (0.4%a vs 0.6%e) while both ex/transportation (-0.5% vs 0.2%) and core capital goods (-0.7% vs 0.2%) contracted.
• The Case Shiller Home Price Index for August came in slightly under consensus forecast with prices MoM (-1.3% vs -0.8%) and YoY (13.1% vs 14.1%) softening more than expected.
• New Home Sales in September declined versus the prior month (603k vs 685k) but did not fall as much as was expected (585k). Pending Sales fell 10.2% versus estimates of -3.8%.
• October’s Consumer Confidence report registered 102.5 versus consensus forecast of 106.0.
• China’s Q3 GDP accelerated to 3.9% while overall September economic data remained mixed with deceleration in export growth (7.1% to 5.7%), retail sales (5.4% to 2.5%), and property investment (-8% YoY). Industrial production accelerated to (4.2% to 6.3%).

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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