Wrong Kind of Heat…| June 10, 2022

AUTHOR: Jason J. Roque, MS, CFP®, APMA®, AWMA®
TITLE:       Investment Adviser Rep – CCO
TAGS:   S&P 500, NASDAQ, Rates, Inflation

Markets kind of heated up last week but in the wrong way. Should more of the same be expected?

Monday                            S&P 500 0.40% | NASDAQ 0.48%

Manufacturing data out Monday morning signaled a weaker than expected economy. It is still growing but at a slower pace than expected. This caused markets to come out of the gates hot. That momentum cooled as the day wore on. The major catalyst to this was the 10-year treasury rate climbing above 3%. This benchmark is symbolic of future rate hikes by the Federal Reserve Board (FRB).

Tuesday                            S&P 500 0.95% | NASDAQ 0.94%

Markets opened in the red but bounced as the 10-year treasury fell below a 3% interest rate. Energy shares benefited from a Goldman Sachs forecast that projected $140 oil this summer (currently appx. $121). Additionally, World bank projections for global growth were revised lower, which implies there will be pressure on FRB hike decisions.

Wednesday                      S&P 500 1.08% | NASDAQ 0.73%

Equities fell on the day. This came as oil inventories were lower than expect. Lower inventories mean higher prices, in turn, means more inflation–which ultimately, means more rate hikes…NYMEX crude oil was up over 2% on the day.

Thursday                          S&P 500 2.38% | NASDAQ 2.75%

Markets tumbled on Thursday on news that the ECB would begin rate hikes in the coming month. Oil markets faired better with NYMEX crude only falling 0.57%. Friday brings Consumer Price Index (CPI) data that investors may very well be priming for.

Friday                                S&P 500 2.91% | NASDAQ 3.52%

CPI data out Friday morning showed inflation had unexpectedly climbed to the highest level in recent history. This led to renewed selling pressure on the markets as it could create a more aggressive FRB. Interestingly, Core CPI which strips out food and fuel, actually went down. Weaker prices in those key areas would be key to renewed consumer confidence.

Conclusion                       S&P 500 5.66% | NASDAQ 7.05%

The prior two weeks resembled a calming in markets for the first time since March. This last week made sure no one was lulled into a false sense of stability. Volatility rose sharply on Friday, but still remains below long-term peaks. Also, the S&P 500 has fallen within striking distance of closing in a technical bear market. It should be expected that the markets will retest those lows in the near future.

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