Stock Moves | September 30, 2022 | FFS

It was a wild ride this last week that ended lower. Were the losses founded or mere speculation?

Monday S&P 500 0.20% | NASDAQ 0.11%

ISM Manufacturing data came in better than expected at 50.3. 50 marks the line between contraction and expansion. Markets were mixed, but the tone was decidedly negative as the pace of inflation slowing seems to be underwhelming.

Tuesday S&P 500 0.72% | NASDAQ 0.95%

Factory orders came in better than expected. JOLT’s Job openings were practically unchanged. Markets sold off, however. Murmurs are swirling that the Federal Reserve Board (FRB) could potentially lower rates less than three times.

Wednesday S&P 500 0.11% | NASDAQ 0.23%

ISM Services came in below expectation, but still expansionary at 51.4. Services actually represent the vast majority of US economic activity. The weaker than expected services data gave a slight lift to markets to close out the day in the green.

Thursday S&P 500 1.23% | NASDAQ 1.40%

Initial jobless claims remain benign at 221K. Stocks started the day optimistically on the jobs data. That sentiment soured as an FRB member made comments pointing to few, or potentially no rate cuts in 2024.

Friday S&P 500 1.11% | NASDAQ 1.24%

Happy Jobs Friday! Was it ever a good jobs Friday. Unemployment went down, the participation rate went up, average hourly earnings went down, and Nonfarm payroll adds beat expectations. The market rebound was broad with the exception of bonds as rates climbed on the strong jobs data. A strong job report lends itself to the speculation of less rate cuts in the future.

Conclusion S&P 500 0.95% | NASDAQ 0.80%

The job report would have typically been negative as erosion of the market would signal reason for FRB rate cuts. This jobs report signals lower future inflationary pressure (slower wage growth) and a strong job market. The data out last week was encouraging, but led investors to speculate a strong economy would likely cause less stimulus. Rate cuts are still likely and slowing quantitative tightening is still likely to start in the next few months. These factors still lend themselves to a strong 2024.

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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 16^th 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).