Tucker Financial Weekly Market Review: November 11, 2022

Weekly Market Report: November 11, 2022

Risk markets certainly appreciated economic data and policy developments last week, translating them to large moves across the global capital markets, currencies, and commodities. Emerging signs of cooling inflation pressures, a shift away from zero Covid policies in China, and a gridlock outcome in the midterms likely all contributed to the move. Equity markets rallied sharply higher, including a rare +5% single day in the
S&P 500. We saw a very rare -2% move in the USD, a strong rally across industrial metals, and a collapse in bond yields.

Market Anecdotes

  • Last week’s soft CPI report alongside upgraded economic growth forecasts (Atlanta Fed GDPNow moving from 3.6% to 4.0%) resulted in a remarkable rally in both equity and bond markets. Whether this is a welcomed bear market rally or a change in trend remains to be seen.
  • Despite massive moves higher across equity markets, it should be noted that the technical downtrend remains firmly in place. Growth oriented stocks with higher debt loads, small to no dividends, no earnings, and higher valuations enjoyed the best performance last week.
  • The USD decline of nearly 4% over two days last week brings its decline since the late September peak to -6.8%.
  • The balance of ten FOMC speaking engagements last week cautiously backed up market pricing of a ‘step down’ concept with regard to future Fed policy while U.S. economic growth seems to be holding up.
  • Adding to indications of labor market/wage softening was Facebook’s announcement last week of significant layoffs casting a shadow across technology related names.
  • The UK housing market is showing signs of stress with mortgage rates buying activity and prices falling.
  • Central bank gold purchases in the third quarter were the largest on record per the World Gold Council, one of the only shiny objects in the gold patch we have seen this year.
  • Two of the most prominent crypto exchanges, FTX and Binance, gave investors heartburn early in the week as speculation about their solvency emerged with the former filing for bankruptcy.
  • China announced the easing of some of their Covid measures by reducing required quarantine times and ending ‘second contact’ policies.
  • U.S. midterm elections (likely?) produced the expected result with a gridlock Congressional outcome moderating both Democrat and Republican agendas, a net positive for the markets.

Economic Release Highlights

• The October jobs report revealed 261,000 new jobs, well above the consensus forecast of 210,000 but lower
than the prior month. The unemployment rate moved up one tick to 3.7%.
• Average hourly earnings increased MoM (0.4%a vs 0.3%e) and YoY (4.7%a vs 4.7%e).

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.

Tucker Financial Weekly Market Review: November 4, 2022

Weekly Market Report: November 4, 2022

Markets digested an important FOMC meeting, a healthy dose of economic data, and a heavy dose of third quarter earnings reports last week. By week’s end, U.S. equity markets traded lower with the most pronounced selling in growth stocks while value and cyclical sectors (energy, industrials, materials) held up relatively well. Importantly, non-U.S. (+1.5%) and emerging markets (+5.6%) rallied with China leading the move higher. Yields drifted higher and flatter on the week with the 10yr UST closing at 4.17% while a rally across industrial metals and energy contracts pushed commodity indices higher.

Market Anecdotes

  • The November FOMC delivered the expected 75 bps rate hike last week, taking the Fed Funds rate to 3.75%-4.00%.
  • While the official FOMC statement leaned a shade dovish, the post meeting Powell press conference squashed any early enthusiasm pushing equities lower and bond yields, put/call ratios, and terminal Fed Funds rate expectations higher.
  • Anticipating labor market deterioration and cooling inflation remain the key focus. Insights surrounding the former include October ISM employment data for manufacturing (50.0) and services (49.1) both hovering around neutral, household survey data deteriorating, and corporate layoff announcements beginning to mount.
  • Upward wage pressures seem to be abating with measures from the Atlanta Fed, ECI, regional Fed and NFIB survey data corroborating this trend. ISM Prices Paid subindex this week also signaled contraction.
  • The healthy U.S. consumer underpinning the U.S. economy as a consistent demand driver stands as one of the most important constructive economic considerations in play today.
  • We’re 85% of the way through third quarter earnings with blended growth of 2.2% and beat rates and margins of 70% and 1.9% respectively. Revenue growth of 10.7% has been accompanied by higher beat rates (71%) and beat margins (2.5%) than historical averages.
  • The future of the richly valued USD depends very much on the direction of the U.S. economy while also factoring in geopolitics, technical conditions, and foreign rate differentials.
  • The upcoming midterm elections look likely to result in a Republican control of both the House and Senate next week. From a market perspective, we have three words – gridlock is good.
  • Russia pulled out of its grain deal with Ukraine on Saturday in response to a drone attack in Crimea but agreed to rejoin on Wednesday.

Economic Release Highlights

• The October jobs report revealed 261,000 new jobs, well above the consensus forecast of 210,000 but lower than the prior month. The unemployment rate moved up one tick to 3.7%.
• Average hourly earnings increased MoM (0.4%a vs 0.3%e) and YoY (4.7%a vs 4.7%e).
• October’s ISM Manufacturing Index (50.2a vs 50.0e) softened slightly while ISM Services (54.4a vs 55.4e) missed consensus and fell two points relative to the prior month.
• The September JOLT survey revealed 10.717mm job openings, in excess of the consensus estimate of 9.875 and an increase over the prior month.
 

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.

Tucker Financial Weekly Market Review: October 28, 2022

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.

Tucker Financial Weekly Market Review: October 21, 2022

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.

Market Anecdotes

  • 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.

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.

Tucker Financial Weekly Market Review: October 14, 2022

Weekly Market Report: October 14, 2022

It was tough to read last week’s market action, particularly on Thursday’s massive intraday swing in both equity and bond markets. As has been the case, new data on inflation, jobs, and resulting monetary policy remain the primary factors in what has been a very macro driven market this year. The week finished with U.S. and developed international equity markets down approximately 1.5% but emerging markets falling nearly 4% driven by a tough week in Chinese markets. The USD and interest rates both moved higher with the 10yr UST yield closing at the 4% level for the first time since 2008. Commodity markets, particularly energy commodities, fell on global growth concerns leaving WTI crude oil at the $85bbl level.

Market Anecdotes

  • Equity markets bounced pretty decisively off a low Thursday morning and maintained throughout the afternoon and while rates followed the same path, bonds did not fully recoup early losses and saw notable upward rate pressure, particularly on the short end of the curve.
  • With equity markets down 25% and bond markets down 15% the right question to be asking might be where we are in respect to financial market capitulation than whether and when the economy will go through a recession.
  • This week’s AAII sentiment survey, not surprisingly, ranks among the 60 lowest in the survey’s history (1987) and has seen less than 35 readings more bearish than last week’s 55.9%.
  • With the midterms approaching, a brief reminder of election cycle theory serves up some constructive anecdotes as we approach the beginning of year three.
  • A snapshot of strong U.S. corporate fundamentals is clear as we began 3Q earnings season last week with margin compression and slowing growth at the forefront of guidance.
  • FOMC minutes released last week made clear the Fed’s consensus is that inflation risks outweigh over tightening risks.
  • Inflation and jobs data are the primary market focus and while inflation did surprise on the upside last week, several inflation data points are beginning to trend lower – a very important anecdote when thinking about the future path of the economy and U.S. monetary policy.
  • With the Atlanta Fed GDPNow model predicting +2.8% 3Q GDP for the U.S. economy, it feels like a relatively healthy economy & labor market for the FOMC to materially reconsider its policy path at this time.
  • A look at the past few months of Fed quantitative tightening makes the downshift clear in terms of net Treasury supply purchases by the Fed.
  • A UN resolution calling on countries not to recognize Russia’s annexation of Ukrainian territories saw 143 vote in favor, 5 opposed (Russian, North Korea, Belarus, Syria, Nicaragua), and 2 abstain (China, India).

Economic Release Highlights

• YoY headline (8.2%) and core (6.66%) CPI decreased and increased respectively from prior month readings and came in slightly higher than consensus.
• YoY headline (8.54%) and core (7.25%) PPI as well as MoM headline (0.38%) and core (0.30%) have begun to show signs of relief.
• September retail sales were flat (0.0%) while sales excluding gasoline and autos grew by 0.3%.
• UofM Consumer Sentiment reading for October of 59.8 represented a small improvement over prior month’s reading of 58.6.
• The NFIB Small Business Optimism Index rose 0.3 points over the prior month to 92.1.
• Weekly unemployment claims of 228,000 were slightly higher than expected and the 4-week moving average of 211,500 edged slightly 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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