There was an onslaught of data last week, which led to gains. Should more be expected with the coming earnings season?
Monday S&P 500 0.27%| NASDAQ 1.09%
ISM Manufacturing unexpectedly slipped and remains in contractionary territory. The weaker economic data would typically signal lower rates as rate cut expectations would increase. To the contrary, 10-year treasuries rose on the day. In the face of weak economic data, the start of the quarter brought optimism towards the next three months.
Tuesday S&P 500 0.62% | NASDAQ .84%
JOLTs job openings rose more than expected to 8.14M openings. For perspective, there were 6.6M unemployed as of the May report. The strong jobs data did not deter markets, though; this may be because the Federal Reserve Board (FRB) Chair, J. Powell, spoke on the day. He indicated that progress is being made towards their inflation target. This is the ‘secret sauce’ needed to justify future rate cuts.
Wednesday S&P 500 0.51% | NASDAQ 0.88%
Initial jobless claims rose for the week to 238K from 234K; the level remains elevated, albeit from all-time lows. Factory orders unexpectedly slipped into the negative on the month. Additionally, ISM Services unexpectedly slipped into contractionary territory. This is all bad news for economic production, so why did the markets rise? Interest rates fell as this data increases the likelihood that the FRB will lower rates sooner than expected. The heightened odds are now calling for a .25% cut in September and December, according to CME FedWatch.
Thursday S&P 500 -% | NASDAQ -%
Happy Independence Day!
Friday S&P 500 0.54% | NASDAQ 0.90%
Happy Jobs Friday! The unemployment rate rose to 4.1%, Nonfarm payrolls beat expectations, and participation rose to 62.6% from 62.5%, all for June. The unemployment rate went up even though we added 206K jobs??? Participation went up so, with more people in the market, the rate can go up even as jobs are added. This is a positive signal that workers are returning to the work force. The rise on equity markets, however, was on hopes that economic weakness would be enough for an FRB rate cut.
Conclusion S&P 500 1.95% | NASDAQ 3.55%
This was a busy week for economic data, especially for a holiday shortened week. We got weaker Jobs, manufacturing, Services, and Factory orders. The weakness led to stronger markets on hopes the FRB will cut rates BEFORE a recession can materialize. The coming week starts second quarter earnings. Valuations are stretched (S&P 500 P/E: 28.94) and economic production is weak, very little should be expected from this season. This could be the start of volatility that would lead into the Autumn.
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Stocks slid for another week. Was there anything we should learn from the moves this last week?
Monday S&P 500 1.03% | NASDAQ 0.60%
Markets opened the week as they left off the prior week. This has been a common trend as of late. The one difference being that markets closed below their June 16th low of 3,666.77, at 3,655.04. The S&P 500 is now down 23.80% YTD. The only meaningful economic news on the day was an under sold 2-year treasury auction. Being undersold provided heavy upward pressure on 2-year and 10-year rates.
Tuesday S&P 500 0.21% | NASDAQ 0.25%
The pressure was too much for markets on Tuesday. They opened in the green, with the S&P 500 up as much as 1.6%. All of that faded, though, as continued downward pressure on sterling caused upward pressure on the dollar. Sterling has been fading since the new government in the UK announced a tax cut package. This comes at a time when central banks around the world are tightening policy. It created a scenario where rates are expected to jump 1.25% and the currency is falling. These are typically highly correlated, which is in direct opposition to what is happening now. Tax cuts are viewed as inflationary and the wrong direction for a developed economy given the inflation issue at hand.
Wednesday S&P 500 1.97% | NASDAQ 2.05%
Rates swung violently to the south. When rates fall bond prices rise. Apparently, stocks rise as well as the easing rate environment created growth in equity markets. The Bank of England started a two-week bond buying program Wednesday. This was done in an effort to stem the bleeding as rates were running away to the north. Not much is expected to be different two weeks from now. This unexpected program sent rates lower drastically in the UK and also here in the US.
Thursday S&P 500 2.11% | NASDAQ 2.84%
The Thursday trade retraced all the gains made on Wednesday. GDP was re-affirmed for Q2 at -0.6%, providing two consecutive quarters of negative GDP. Classically a recession, but not this time. The logic is that consumer spending rose by .5% but that inventories dragged overall GDP into negative territory.
Friday S&P 500 1.51% | NASDAQ 1.51%
Quarter number three of 2022 is in the books, and it was not one to remember. The final reading of CORE PCE data (inflation reading) rose to 4.9% from 4.7%. This caused concern that we may be dealing with an aggressive FRB for some time. PCE is the FRB’s preferred measure of inflation.
Conclusion S&P 500 2.91% | NASDAQ 2.69%
Friday was a rough day to cap a rough week, month, quarter, and year. There are reasons for hope in the fourth quarter, but also reasons for doubt. Corporate earnings could buoy the markets in October/November; however, expectations have been diminished as an economic slowdown has been widely expected. The election could cause turbulence or be applauded for grid lock. And of course, the Santa Claus rally could brighten markets as consumer spending increases earnings, or it could drive market fears of more rate hikes from the FRB due to higher inflationary pressures.
One thing is for sure: large single day increases on the equity markets are not our friends. If markets jump up 2%, they can tumble just as fast (as was seen on Wednesday and Thursday).
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Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.