Weekly Market Report: September 16, 2022
Markets last week had to digest a higher likelihood of a steadfast hawkish Fed in light of the economic calendar both here and abroad. Investors were again faced with little to no winners as equity markets and bond markets sank together, in what has been a clearly increasing pattern of rising rates/inflation anxiety corresponding to falling equity market prices. By the end of the week, the S&P 500 was within 5% of retesting the June lows and interest rates were at or above the June highs, depending on the term. The USD rallied in typical risk off/higher interest rate fashion while commodities broadly moved lower on the week.
- A hot inflation reading on Tuesday may have reduced the odds of the Fed engineering a soft landing, offsetting increased soft landing odds stemming from last month’s employment report.
- That the aggressive pace of Fed rate hikes has markets on edge might be understandable given we’re looking at the fastest six-month pace of rate hikes since 1981, assuming 75bps this week.
- Futures markets have priced in an additional 50bps of rate hikes in recent days, to a terminal rate of 4.5% by April of 2023, which has been reflected in both economic forecasts and stock/bond market pricing as well.
- Happy endings have clearly not been the weekly trend in 2022 with more 1%+ down days ending the week than any year since 1952. This week was thanks in part to a very public warning of weakening earnings and slowing global growth from FedEx CEO Raj Subramaniam.
- A current look at market technicals shows the S&P 500’s rejection of the 200 daily moving average and subsequent breakdown toward the bear market low in June means the downtrend is still very much in place with markets again flirting with oversold technical conditions.
- Another look at positive stock and bond correlations and the resulting headwind to standard investment portfolios shows both shorter and longer term trends dramatically on the rise.
- Election cycles and mid-term predictions will now begin to ramp up warranting a look at which policy debates have market implications and requisite historical election cycle market patterns.
- Eurozone inflation is doing the ECB no favors as regional CPI marked record highs for eleven consecutive months.
Economic Release Highlights
- CPI for August reported MoM headline (0.1% vs -0.1%) and core (0.6% vs 0.3%) and YoY headline (8.3% vs 8.1%) and core (6.3% vs 6.1%).
- The latest New York Fed Survey of Consumer Expectations show median 1yr, 3yr, and 5yr ahead inflation expectations falling
- August Retail Sales increased 0.30% (vs expectations for -0.1%), a rebound from prior month’s -0.40% reading.
- August’s NFIB Small Business Optimism Index improved to 91.8, slightly higher than expected (90.5) and a small improvement over the prior month (89.9).
- UofM Consumer Sentiment improved from 58.2 in August to 59.5 in September.
- Industrial Production in August softened 0.20%, a slowdown from prior month’s 0.50% growth.