December 2, 2023, Weekly Stock Market Return Recap. Goldilocks economic data, stable earnings, oil price weakness, and cash flowing back into stocks has resurged the US equity rally to where year-to-date gains are nearly their highest levels for the year. On a total return basis, the month of November was a blockbuster month with the Nasdaq finishing up 10.8%, the Dow Jones +9.2% and the S&P 500 ended the month +9.1%. After the tepid inflation (CPI/PPI) reports, and Q3 US GDP was revised to 5.2% from 4.9% (5.0% expected), the market momentum changed, and now investor sentiment is towards Fed being done raising rates.
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November 24, 2023, Weekly Stock Market Return Recap. For the short holiday week, the S&P 500 and Nasdaq both rose about 1%, with the surprise leader being the Dow Jones, finishing up 1.3%. The percentage of bullish investors increased to 45.3%, coming in above the historical long-term average of 37.5%, which coincides with the $40 billion money flowing back into stocks. This dollar flow into equities marks the biggest two-week inflow since February 2022. The week was also assuaged by geopolitical events of Israel and Hamas starting a four-day ceasefire on Friday, which included an incremental daily return of hostages held by Hamas.
November 17, 2023, Weekly US Equity Market Return Recap. Stocks continued their rise upward on the week with the S&P 500 up 2.2% and the Nasdaq finishing +2.4%; the Dow also closed positive, at +1.9%. First, November has historically been a upward month for the US stock market, with the S&P 500 gaining on average +1.7% in November going back to 1950, ranking the top month for positive returns in the year. Second, the economy showed further signs of slowing with the core CPI declining to only +0.2% month-over-month. Further, stock earnings remain stable, with the third quarter’s year-over-year blended earnings growth coming in around 6.6%. However, excluding the energy sector, the growth rate for the index is 12.0%. The stock market sentiment has a bias now for the Fed to pause, and perhaps start cutting rates at some point in 2024. This conviction is reinvigorating money flows into stocks. Yet, Fed Chair Powell comments on Thursday, “We are not confident” that the benchmark rate is sufficiently high to reduce inflation to 2%, the Fed’s target, runs counter to the pause and cut-rate theory. Indeed, Powell also commented “We know that ongoing progress toward our 2% goal is not assured. Inflation has given us a few head fakes along the way.” November 3, 2023, Weekly Stock Market Return Recap. For the week, the S&P 500 jumped 5.9%, for its biggest gain since November 2022 while the Nasdaq overshot the broad market index, closing the week with a whopping +6.6% gain. The Dow Jones moved up 5.1% on the week, marking its biggest gain since late October 2022. Market sentiment turned bullish on expectations that the Fed could be done with rate hikes. The Federal Reserve held interest rates in the range of 5.25%-5.50%, the highest level since 2001. While the market is clearly taking a victory lap, the Fed left the door open for further rate increases. For example, the Fed elevated its assessment of the economy to "strong" in the third quarter from "solid" in September, then added: "Recent indicators suggest that economic activity expanded at a strong pace in the third quarter." Nonetheless, the market celebrated nonfarm payrolls that came in 20,000 lower than consensus forecast at 150,000 for the month; that was a sharp decline from the gain of 297,000 in September. Further, the unemployment rate rose to 3.9%, the highest level since January 2022, amid a drop in household employment. October 27, 2023, Weekly Stock Market Return Recap. All three major stock indexes registered steep weekly losses, led by the Nasdaq -2.6% followed by S&P 500 and the Dow Jones, -2.5% and -2.1%, respectively. Two of the largest market capitalization stocks in the Nasdaq, Facebook’s Meta Platforms and Google-parent company Alphabet, disappointed the markets with earnings and were sharply down for week. Overall, stocks have hit a technical correction with the S&P 500 down over 10% from its yearly high. With about half of the S&P 500 stocks having now reported, shares of companies that disappointed analysts’ estimates on the earnings-per-share metric have seen their stock underperform the benchmark index by a median of 3.7%. That’s the worst performance in the data’s history going back to the second quarter of 2019. Even publicly traded US stocks beating estimates have lagged the S&P 500 by 0.6%, which is the first such underperformance since the fourth quarter of 2020. The US economy grew at its fastest pace in nearly two years at 4.9% during the most recent quarter ending in September. Economists surveyed by Bloomberg estimated the US economy grew at an annualized pace of 4.5% during the period. Indeed, GDP continues to defy predictions for a slowdown as many expected the Federal Reserve's monetary tightening to constrain the American consumer. October 20, 2023, Weekly Stock Market Return Recap. US stocks fell to four-month lows on the week, led by the Nasdaq -1.5%, followed by the S&P 500 -1.3% and Dow Jones -0.9%. The losses were spurred by fears that the Israel-Hamas conflict could further escalate in the Middle East, Fed rate hike talk and strong monthly retail sales. Fed Chair Powell spoke on Thursday, remarking “Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment.” Powell further commented that “additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy.” Retail sales rose 0.7% in September from the previous month, more than double Wall Street expectations of 0.3% growth, spurring further rate hike concerns. October 13, 2023, Weekly Stock Market Return Recap. U.S. equity market ended the week higher on lower interest rate expectations, better-than-expected corporate earnings, and rising oil prices. The S&P 500 finished the week up 0.45% after giving back -0.5% on Friday, marking its second week of positive results, while the Dow Jones return +0.79%. Energy, utilities, and real estate sectors outperformed in the week, while consumer staples, health care, and materials were the laggards. Food and energy increased more than anticipated in the month of September by 0.5%, marking the third straight month of inflationary increases. October 6, 2023, Weekly Stock Market Return Recap. The broad US market equity index of the S&P 500 rose for the week, snapping a four-week losing streak. For the week, the S&P 500 finished up 0.5%, the Dow fell 0.3% and the Nasdaq rose 1.6%. Every consumer confidence measurement is below pre-pandemic levels, with consumer confidence falling again in September 2023 to a four-month low, marking two consecutive months of decline. Further, the overall Economic Optimism gauge plummeted 16% to 36.3, marking the weakest since August 2011 and its 26th straight month in negative territory. However, the job front remains healthy, with the US economy adding 336,000 jobs in September, almost double the number expected. Employment continues to spike investors worry that overall resiliency on the jobs front will give the Fed conviction for a more restrictive policy going forward. Further, the number of open jobs by the JOLTS report showed an increase for August, raising questions of whether the job market is tempering fast enough to appease the Federal Reserve. Case in point, Cleveland Fed President Loretta Mester said Tuesday she is likely to favor a rate hike at the next meeting if the current economic situation holds. September 29, 2023, Weekly Stock Market Return Recap. The UAW strike talks with leading auto companies, inflation data and the government debt ceiling concerns continued to be an overhang on stocks for the week, and the month overall. For the week the S&P 500 finished down 0.7% and the Dow off by 1.3%., while the Nasdaq ended about flat for the week. The S&P 500 ended the month down 4.9% and the quarter lower by 3.7%. The Nasdaq Composite was off 5.8% in September, and down 4.1% for the quarter. Both posted their worst months this year. A key inflation metric, the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 3.9% on an annual basis for August, far above the Fed’s 2% inflation target. U.S. consumer spending was revised downward to an annualized rate of 0.8%, down from the initial 1.7% reported for the second quarter of 2023. This new figure marks the weakest spending growth in more than a year. The Fed found that the bottom 80% of income earners were making lower bank deposits and had reduced liquid assets.
September 22, 2023, Weekly Stock Market Return Recap. Stocks dropped for the third straight week and the broad market equity index marked its sharpest weekly loss since March: The S&P 500 and the Nasdaq dropped 2.9% and 3.6%, respectively, while Dow Jones ultimately ended the week 1.9% lower. Moreover, the S&P 500 dipped below its 100-day moving average - a key support level. Though the Fed took no rate action during this month’s FOMC meeting, the door was left wide open for future hikes. Twelve participants at the meeting penciled in the additional hike, while seven opposed it. That put one more in opposition than at the June meeting. Markets had fully priced in no move at this meeting, which kept the fed funds rate in a targeted range between 5.25%-5.5%, the highest in some 22 years. Fed Chair Powell also said an additional hike at one of the two remaining Fed meetings for 2023 was “more than likely” and "It's a real rate that will matter and that needs to be sufficiently restrictive." Projections released in the Fed's dot plot showed the probability of one more increase this year, then two cuts in 2024; there were two fewer cuts than what was indicated during the last update in June. In other news, the three months leading to June, S&P 500 companies spent just $175 billion on share buybacks, a sharp 20% drop compared with the year before, according to the Financial Times. September 15, 2023, Weekly Stock Market Return Recap. Wall Street marked another losing week for stocks: The S&P 500 dropped 1.2%, the Dow Jones declined 0.8% and the Nasdaq composite fell 1.6%. Consumer Price Index (CPI) rose 0.6% over last month and 3.7% over the prior year in August, an acceleration from July's 0.2% monthly increase and 3.2% annual gain in prices. Economists surveyed by Dow Jones were looking for respective increases of 0.6% and 3.6%. Other capital market distractions include union workers’ strike against all Big Three Auto companies. for first time in history, and China flailing economy showing some growth improvement, except for the lingering threat of a looming real estate collapse. September 8, 2023, Weekly Stock Market Return Recap. US equity markets declined on investor concerns over China’s iPhone curbs, spiking energy costs and unemployment claims hitting their lowest levels since February. Indeed, the latter two factors reignited fears that these inflationary and economic signs could push the Fed to continue its rate hike path. For the week, the S&P 500 dropped -1.3%, the Dow Jones declined -0.8% and the Nasdaq fell -1.9%. September 1, 2023, Weekly Stock Market Return Recap. Wall Street closes out first losing month since February with the S&P 500 -1.8% and the Dow Jones -0.5%. The number of open jobs in the US dropped to its lowest level in more than two years last month as signs of a slowdown in the labor market grew in July. However, the Federal Reserve's preferred inflation measure of Personal Consumption Expenditures (PCE) edged higher in July, reversing some of the prior month's sharp drop. The PCE Index rose 4.2% over the prior year in July, up from 4.1% in June. Federal Reserve Chair Jerome Powell and European Central Bank ("ECB") President Christine Lagarde reiterated they have no plans to change their 2% inflation goal at last week's Jackson Hole Economic Symposium. August 25, 2023, Weekly Stock Market Return Recap. After three weeks of equity market losses, the US stock market indexes finished in the green for the week: The S&P 500 finished +0.8%, the Dow Jones gained 0.73% and the Nasdaq close the week up 0.94%. The market took refuge in that Powell’s Jackson Hole speech was not overly hawkish while he also noting economic strength: “The economy may not be cooling as expected. So far this year, GDP (gross domestic product) growth has come in above expectations and above its longer-run trend... The message is the same: It is the Fed’s job to bring inflation down to our 2 percent goal, and we will do so.” Powell also added, “we are prepared to move rates further, if appropriate.” However, Federal Reserve Bank of Philadelphia President Patrick Harker said he sees interest rates on hold for the rest of this year, and that policymakers have likely undertaken sufficient tightening. The U.S. Dollar Index hit a 10-week high as investors sought a safe haven due to concerns about China's economy, which is experiencing a further decline in health for its economy. China's central bank unexpectedly cut a range of key interest rates in a bid to spur growth in its faltering economy, and notably, China also suspended publication of its youth jobless data. August 18, 2023, Weekly Stock Market Return Recap. For the week, the S&P 500 and Dow Jones both lost about 2% while the Nasdaq dropped 2.6%. Both the S&P 500 and Nasdaq have broken down below their 50-day moving averages for the first time in months. The Nasdaq has plummeted 7.2% in the past three weeks, its sharpest three-week drop since late December. Similarly, the S&P 500's three-week loss of 4.6%, marking its deepest decline since the three weeks ending on March 10. The August market pullback has been driven by equity investors concern over the bond market, the Fed’s interest rate path and China. Indeed, the weak economic data for China has a worldwide demand ripple effect and Fed Minutes suggests another rate hike is still on the table. Specifically, the Fed Minutes included the following phrases: "Most participants" continued to see "significant upside risks to inflation, which could require further tightening." Investors are acutely sensitive to strong economic data which is perceived to be tied to Fed rate hikes and the latest data out of the U.S. Commerce Department shows retail sales rose 0.7% in July after upward revisions in the previous two months. However, retailer CEOs have indicated the economy may finally lose some momentum later this year as student loan debt repayment returns in October. August 11, 2023, Weekly Stock Market Return Recap. The S&P 500 and Nasdaq both gave up ground for the second week, falling 0.3% and 1.9%, respectively. The Producer Price Index (PPI) rose at a higher-than-expected pace of 0.3% last month after increasing 0.1% in June. Economists had expected wholesale inflation to rise, but only to 0.2%. The Consumer Price Index (CPI) also rose 3.2% in July over the prior year, a slight acceleration from June's 3% annual increase. Over 84% of the S&P 500’s market stock constituents have reported earnings with 72% beating estimates by 7.2%. August 4, 2023, Weekly Stock Market Return Recap. The S&P 500 dropped 2.3% on the week, marking its biggest one-week decline since the week ended March 10. The tech-heavy Nasdaq stumbled around 2.8%, also its worst week in months. Market sentiment was rattled by the recent Fitch downgrade of U.S. debt from AAA to AA+. The only other time the U.S. faced a credit downgrade was in 2011, when Standard & Poor’s similarly lowered its rating one notch. On the economic front, the US economy created 187,000 new jobs in July while the unemployment rate fell to 3.5%, according to the Bureau of Labor Statistics. The July job report came in below expectations of a total 200,000 new jobs. The slowdown in hiring has a silver lining as many are looking for signs of a cooling labor market in an effort to tame inflation and prompt the Fed to pause future rate hikes. July 28, 2023, Weekly Stock Market Return Recap. For the week the S&P 500 finished up 1%, the Dow +0.7% and the Nasdaq +2%. The equity markets continue to be propelled by positive job reports, high consumer confidence, consumer spending, corporate earnings and higher than expected 2nd quarter GDP numbers. The Federal Reserve hiked the target range for its benchmark interest rate by 0.25% on Wednesday and left the door open to more rate increases. The rate hike increased the interest range to 5.25% and 5.5%, the highest level since March 2001. The Fed reiterated in their view on inflation as "elevated," and they remain "highly attentive" to inflation risks. Further, the Fed stated "Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated." The Bureau of Economic Analysis's advance estimate of second quarter US gross domestic product (GDP) showed the economy grew at an annualized pace of 2.4% during the second quarter of 2023 period, faster than consensus forecasts. Economists surveyed by Bloomberg had the US economic growth estimated at an annualized pace of 1.8% during the period. However, despite the previous forecast misses, Wall Street now sees Q3 and Q4 GDP growth slowing to 0.5% and -0.4%, respectively. The S&P 500 has far exceeded most of Wall Street's year-end return predictions, defying concerns over recession risks, inflation, and monetary tightening. The unexpected market surge has forced most strategists to revise their forecasts upwards.
July 14, 2023, Weekly Stock Market Return Recap. Earnings season hit Wall Street running with positive news and these releases moved US stocks upward on the week. The Nasdaq jumped 3.3%, the S&P 500 increased 2.4% and the Dow finished up 2.3%. Consumer prices rose at the slowest pace since March 2021 as inflation showed further signs of cooling in June, rising 0.2% over last month and 3% over the prior year in June. This increase, however, was only a slight acceleration from May's 0.1% month-over-month increase. July 7, 2023, Weekly Stock Market Return Recap. The Dow fell 2%, the S&P 500 declined 1.2%, and the tech-focused Nasdaq Composite edged down 0.9% for the week. US equity markets continue to be rattled by economic resiliency, reigniting Fed hawkish fears. Indeed, stronger-than-expected average hourly earnings together with upward revisions to wage growth are indicators that more rates increase might be on the horizon. Insofar as the US economy added 209,000 jobs in June missed the Wall Street 225,000 estimates, in turn, the ADP Employment report for June had private employers adding 497,000 jobs, well above Bloomberg consensus estimates for 225,000. The strong economic data drove up Treasury yields, which jumped to some of the loftiest levels on the year with the 10-year Treasury note yield rising to 4.047% July 1, 2023, Weekly Stock Market Return Recap. The three major equity indexes notched winning weeks, gaining more than 2% each on news that the consumer was still driving the economy. Indeed, US Consumer Sentiment Is Improving according to the University of Michigan sentiment index, which rose to 64.4 in June from a preliminary reading of 63.9; that marked a rebound from a May slump. However, with the stocks clearly back in the bull market, there remains a divide on Wall Street on whether this bull run will last or revert to new lows. The primary golden rule in stock market investing is “don’t fight the Fed” and Fed Chair Powell says inflation isn't returning to 2% this year or next, which translates to more interest-rate hikes ahead. Further, the yield curve remains inverted and historically, after the yield curve inverts, it takes roughly 15-months for the economy to officially enter a recession. Given this benchmark timeline together with the fact that the yield curve inversion occurred about a year ago, the economy could enter a recession in October of this year. History also tells us that most Fed tightening cycles do not end in a soft landing. Over the past 11 tightening cycles, all but three resulted in an economic recession, or statistically there is a 73% chance of recession ahead. June 23, 2023, Weekly Stock Market Return Recap. The stock market reacted negatively to Fed Chair Powell’s statements this week with the S&P 500 and Nasdaq both ending down 1.4% and the Dow Jones falling 1.8%. The broad market index of the S&P 500 decline was the largest since March with most trade days finishing in the red on the week. Powell’s remarks at a House Financial Services Committee hearing Wednesday were perceived as hawkish, characterized with statements “The process of getting inflation back down to 2 percent has a long way to go” and "Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year." The week’s economic news was highlighted by ISM’s Manufacturing New Orders Index which contracted for the ninth consecutive month in May, registering 42.6 percent, a decrease of 3.1 percentage points. Historically, declines below the 43.5 range in the ISM New Orders Index have been a reliable signal of impending U.S. recessions. Indeed, out of the more than one dozen occasions where the ISM Manufacturing New Orders Index has below 43.5, only one proved to be a false-positive for a U.S. recession, and that occurred way back in the 1950s. Another factoid is should a U.S. recession occur, history would suggest that the Dow, S&P 500, and Nasdaq Composite have yet to reach their true bear market lows, as no bear market after World War II has bottomed prior to an official recession being declared.  June 16, 2023, Weekly Stock Market Return Recap. On a bullish Fed rate pause, the S&P 500 finished up +2.6% on the week, marking its best performance since March of 2023. After 10 consecutive interest rate hikes over the past 15 months, the Federal Reserve finally decided to pause during Wednesday’s Fed meeting. This rate pause will give the Fed further time to process incoming economic data and inflation. Yet, it might be premature to take out the party bowl as the Fed's decision comes with the projection of another two 25 basis point rate hikes ahead in 2023; this would move the benchmark rate into the 5.50% and 5.75% range. The market probability tracker shows that the central bank's future rate hikes have about a 60% chance the Fed will hike rates by 0.25% in the next July meeting. Back to the equity markets, it is important to highlight the unhealthy balance in the S&P 500 recovery, as the concentration of stock leaders is the most concentrated since 1970’s. Indeed, seven tech stocks - Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta - have accounted for most of the S&P 500’s recovery with 40%-80% range bound gains, while the other 493 stocks are largely flat in aggregate. Moreover, the top five stocks now represent nearly one-quarter of the S&P 500 market capitalization. Those lopsided percentages are even higher than at the peak in the dot-com bubble of 2000, where the market lost 43% of its value over three years. Unless the breadth of stock participation in the rally expands, this does not bode well for the sustainability of the stock market recovery. Therefore, client portfolios will remain diversified with neutral risk standing until which time we see both more supportive economic data and broader market sector participation in stocks.
June 9, 2023, Weekly Stock Market Return Recap. Stocks rose on the week moving the S&P 500 broad market index into new bull market territory with a +20% recovery from the lows back in October of last year. For the week, the S&P 500 finished up 0.4%, the Dow gained 0.3% and the Nasdaq eked out 0.1%. However, over one half of the 11 sectors in the S&P 500 are still in the red, while Information Technology (+35%) and Communication Services (+33%) sectors are largely carrying the index upward on the year. Yes, insofar as the sector participation breadth has increased in June from previous months, the fact that technology and to a smaller part, consumer discretionary, are driving the positive equity index market gains on the year is a sign the lingering problems for the prospects of a healthy, sustainable bull market. June 2, 2023, Weekly Stock Market Return Recap. Stocks buoyed on jobs data and debt default averted. For the week, the S&P 500 rose 1.82%, the Dow added 2.02% and the Nasdaq gained 2.04%. A lot of positive developments on the week with the government debt ceiling suspended for two years and unemployment jumping to a seven-year high at 3.7%; in particular, the easing of labor spiked sentiment that the Federal Reserve may skip a rate hike in two weeks. May 26, 2023, Weekly Stock Market Return Recap. The US equity markets finished mixed for the week on cross currents of news, with the Nasdaq and S&P 500 up 2.5% and 0.3%, respectively, while the Dow Jones lost 0.1%. The Fed’s attempt to slow the US economy received pushback on consumer spending news with a spending increase by 0.8% in April, marking an uptick in pace after two months of modest 0.1% gains. Also, technology stocks got a huge boost with Nvidia's (NVDA) blowout financial performance and guidance of robust future growth in artificial intelligence (AI). Also, toward the end of the week, stocks were propelled by US Treasury’s Yellen extending the government debt default deadline by five days, to June 6th and then House Majority Leader McCarthy sharing “progress” on negotiated talks to extend the US government debt ceiling.
May 19, 2023, Weekly Stock Market Return Recap. Equity markets ended the week higher as prospects regarding a deal to raise the debt ceiling boosted market sentiment. The Nasdaq led the indexes up +3%, followed by the S&P 500 +1.6% and the Dow Jones at +0.4%. In Bank of America’s latest fund manager survey, 71% of investors indicated they expect a debt ceiling resolution before the “X-Date.” The other driving force for market sentiment has been the FOMC omitting a line from its previous statements of “anticipates that some additional policy firming may be appropriate.” This line removal set the stage for expectations of a Fed rate increase pause for the June meeting. On the economic front, retail sales rose 0.4% last month, missing economists' expectations for a 0.8% increase. Case in point, Home Depot (HD) reported its biggest revenue miss in more than two decades. Faltering consumer demand has forced the home-improvement retailer to lower its forecast for the year. Also, Target’s (TGT) management warned about a continued softening of consumer demand. May 12, 2023, Weekly Stock Market Return Recap. The S&P 500 and Dow Jones Industrial Average logged their second weekly loss in a row of -0.2% and 0.03%, respectively. The regional bank turmoil continues to weigh on investor sentiment. Case in point, data showing consumer sentiment declined by more than expected to 63.5 in April, the lowest reading since last November last year. Though the broad market stock index is up mid-single digits on the year, there is an unhealthy narrow market breadth with the top 10 stocks holding about 30% weight in the index and comprising around 70% of year-to-date performance. According to this week’s data from the Bureau of Labor Statistics released Wednesday morning, the Consumer Price Index (CPI) revealed headline inflation rose 0.4% over last month and 4.9% over the prior year in April. May 5, 2023, Weekly Stock Market Return Recap. The major Indices opened the week on a positive note, but couldn't hold onto any gains, with the S&P 500 ending the week 0.8 percent lower. Regional banks suffered another day of sizable losses as anxiety crippled the markets Thursday with new set of banks, PacWest and Western Alliance, at risk of failure, prompting The SPDR S&P Regional Banking index to close at its lowest level since October 2020. Investors were so pessimistic that fed-fund futures began to register as much as a 10% chance the Fed will cut rates in June. Also, energy has been a drag on stocks these past weeks as the markets price-in a recession. For example, GDP growth for Q1 did decline, from 2.6% in Q4 of 2022 to 1.1%; the consensus was in the 1.6%-1.8% range. However, it appears any recession will have a shining light of employment which means healthy, with the April jobs report showing stronger than expected job gains with the unemployment rate falling to 3.4%. On the week, the Fed raised interest rates 0.25%, escalating inflation fight. Fed Chair Powell’s comments were "Inflation pressures continue to run high," and "The process of getting inflation back down to 2% has a long way to go." Powell noted the removal of a sentence that was previously in place in the Fed's rate hike announcements that said "some additional policy increases might be appropriate." Powell characterized the omission as "meaningful," saying a decision about any additional rate hikes would be "data dependent." April 28, 2023, Weekly Stock Market Return Recap. Boosted by the strength of mega caps, the S&P 500® posted a positive 2% return in April, outpacing smaller cap stocks. However, almost one-half of that return was driven by only two sectors, Communications and Information Technology, which indicates that sector breadth is still narrow with many sectors lagging. As we enter the second quarter (Q2), inflation and the Fed remain at center stage, but with added worry of brewing problems with bank reserves, future bank lending and existing commercial loan portfolios. Morgan Stanley Chief Investment Officer Mike Wilson wrote a recent note on major near-term risk for stock prices. Wilson said the regional banking crisis triggered an unusual surge in liquidity that elevated stock prices prior to earnings seasons. He also asserted that the business cycle is slowing and that earnings remain far too high. Wilson further noted that when forward earnings-per-share ("EPS") growth goes negative, which is the current trend, the Fed usually cuts rates, not hikes them. But with four-decade-high inflation, the Fed has hinted that cutting rates won't be in the conversation until 2024. Below, is a graph of the current relationship between earnings growth and the S&P 500 return on a five-year historical basis:  April 21, 2023, Weekly Stock Market Return Recap. All US equity indexes posted muted losses on the week, led by Nasdaq -0.4%, followed by Dow Jones -0.2% and with the broad market equity index finishing essentially flat at -0.1%. Markets continue to feel the drag of the financial sector, with disappointing earnings and deposit surplus concerns. The top sector performer on the week was the defensive sector of consumer staples, led by Proctor & Gamble (PG) earnings beating estimates and finishing up +3% on Friday; shares of Home Depot (HD), Lowe's (LOW), and Kimberly-Clark (KMB) also finished strong. While inflation trends are declining, the services sector remains sticking. For example, core services inflation is outpacing core goods inflation by a significant degree. Interestingly, though, the annual change in core goods inflation ticked up for the first time since summer 2022, while the annual change in core services ticked down for the first time since summer 2021. April 14, 2023, Weekly Stock Market Return Recap. All US equity indexes edged upward on the week: S&P 500 closed up 0.8%, Dow Jones finished +1.2% and Nasdaq inched +0.3%. The US equity markets have been rebounding these past 6 weeks, but it is important to keep in mind that a bear market has never bottomed out before a recession begins. As investors brace for an economic slowdown, this week began with the most significant net short position in the S&P 500 futures since 2011. Furthermore, the breadth of the market remains lackluster, with 57% of stocks in the S&P 500 trading below their 200-day moving average. The Consumer Price Index (CPI) revealed headline inflation rose 0.1% over last month and 5.0% over the prior year in March, a slowdown from February's 0.4% month-over-month increase and 6% annual gain. March's inflation of 5.0% was down from June's 9.1%, marking the slowest annual increase in consumer prices since May 2021, and growing ever closer to the Federal Reserve's 2% target. Both measures were slightly better than economist forecasts of a 0.2% month-over-month increase and 5.1% annual increase, according to data from Bloomberg.  April 6, 2023, Weekly Stock Market Return Recap. On a short holiday trading week, the US equity market indexes finished mixed: The S&P 500 lost -0.1% on the week, posting its first losing week in four, while the Nasdaq fell -1.1%. However, the Dow Jones stayed afloat, rising +0.6% on the week. Both the Institute for Supply Management (ISM) Manufacturing and Purchasing Managers' Index (PMI) showed that the economy did worse than expected in March, falling to quarterly lows. The bellwether of business conditions ISM’s overall reading was 51.2, which was far below expectations of 54.4 and last month's reading of 55.1. Similarly, the PMI reading came in at 46.3, which is notable since a reading below 50 indicates a contraction. Finally, inflation trends continue to ease as marked by the Personal Consumption Expenditures (PCE) inflation data for February was slightly softer at 0.3% vs 0.4% expected.
March 31, 2023, Weekly Stock Market Return Recap. All three US equity indexes spiked more than 3% on a weekly basis. For the month, the S&P 500 closed 3.51% higher, while the Nasdaq jumped 6.69%. Insofar as the headline gains are impressive, the positive territory gains are largely recovery trends that are yet to be supported by wide sector market breadth support. For example, Apple and Microsoft accounted for about one-half of the S&P 500’s monthly gains. Another way to break this down is that while the S&P 500 is now up 7.5% year-to-date, the Information Technology sector contributed +5.44% of that total gain for the first quarter (Q1FY23). Indeed, only four of the 12 sectors in the S&P 500 are meaningfully up, with four sectors in the red and another four sectors about breakeven on the year. The catalyst for the market recovery this month is that the real federal-funds rate is quickly approaching positive territory. In the past, this has signaled the end of rate hikes, with the central bank likely only having one further rate hike ahead. March 24, 2023, Weekly Stock Market Return Recap. The S&P 500 dropped as much as 1% in early Friday trading, the most in a week, reverse into positive territory to close +0.57% on the week. Likewise, the Dow Jones Industrial and technology-laden Nasdaq Composite ended the week up +0.4% and +0.3%, respectively. The Federal Reserve raised interest rates by a quarter of a point and changed guidance to indicate that the end of increases is near. Previously, the Fed has included a line in its statement that its policy-making committee expected "ongoing increases" in the Fed Funds rate, but the line was omitted from the March 22 post-meeting statement. In its place, the FOMC added new phrasing noting that they "will closely monitor incoming information and assess the implications for monetary policy." Fed Chairman Jerome Powell also said that lending conditions may have tightened more than what’s indicated, increasing economic uncertainty. The interest rate move to proceed in its inflation-fighting efforts comes despite turmoil in the banking system. For example, with two bank failures and one French bank rescue takeover, U.S. commercial bank deposits are down 3%, an unprecedented $537 billion drop.
March 17, 2023, Weekly Stock Market Return Recap. The collapse last week of Silicon Valley Bank and Signature Bank led to a sharp market sell-off of bank stocks, while the news also rippled into other financial sectors, and ultimately the contagion impacted stocks across the board with Real Estate and Industrials also taking it the shorts during the week (as both sectors depend on lending). However, the up days overcame down days with FDIC backstopping deposits, First Republic Bank getting $10 billion credit lines from 10 banks and news that UBS is pursuing an acquisition of Credit Swiss. The markets were further supported by the silver lining that though the high rates are taking a toll on banks, this in turn, my prompt the Fed to stop raising rates and maybe even lower rates faster when they do lower rates. Other economic news was The U.S. Bureau of Labor Statistics' February Consumer Price Index showed inflation eased in February as prices rose 6.0% from a year earlier - increasing the likelihood that the Federal Reserve could end rate hikes soon. Also, the Federal Reserve Bank of Philadelphia's Manufacturing Index contracted for the seventh-straight month with significant deterioration in the six-month outlook. March 10, 2023, Weekly Stock Market Return Recap. Jarred by the second largest US bank to ever fail, the S&P 500 skidded 1.4 percent on Friday, finishing the week down 4.5 percent and marking its worst week of the year. The decline was led by Silicon Valley Bank’s (SVB) failure to meet regulatory reserve requirements and subsequently placed under FDIC control. The US equity markets were also disrupted by Fed Chair Powell comments early this week indicating that rates will be "higher for longer" as the Fed continues to do what is necessary to battle down inflation. Fed Chair Powell’s remarks before the Senate Banking Committee: "The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated … prepared to move in larger steps if the "totality" of incoming information suggests tougher measures are needed to control inflation.” After a strong start to the year most of the S&P 500 gains have since been given back, and therefore it is important to reflect upon historical guardrails at this juncture. During a Bear market, the S&P has never hit a low before the 2-year treasury yield has peaked. With the 2-year hitting a cycle high of 5% this week, that portends the October low for the indices very well may not be the low. March 3, 2023, Weekly Stock Market Return Recap. The S&P 500 notches its first winning week in past four weeks finishing up +1.6%; The Dow Jones Industrial Average climbed 1.2%, while the Nasdaq composite spiked 2%. The market is looking for any silver lining with inflation and decided to clutch on to the Institute for Supply Management Service Index where the released monthly figure for February showed that inasmuch as prices are still rising for what is paid by services organizations, the growth decelerated in February. Indeed, the U.S. ISM Services Index is little changed in February, easing to 55.1 during February from an unrevised 55.2 in January, according to the Institute for Supply Management. Other market supportive news was Federal Reserve Bank of Atlanta President Raphael Bostic said he favors using smaller interest rate adjustments to fine-tune monetary policy and thinks it could pause by mid-summer. February 24, 2023, Weekly Stock Market Return Recap. The markets continued to be rattled by lingering inflation as recent economic data has increased expectations that the Fed will have to move higher and hold interest rates at higher rates for an extended period. The US major equity averages all ended the week with their biggest losses in 2023. The S&P 500 was down 2.7%, marking not only its third weekly loss but its worst week since Dec. 9th of last year. The Dow fell almost 3.0% this week — its fourth straight losing week. The Nasdaq closed 3.3% lower, notching its second negative week in three. Two Federal Reserve officials suggested Friday morning that inflation could persist longer than thought after the central bank's most closely watched inflation gauge surged by the most in months. The Fed’s Kansas City’s Bank Manufacturing Survey for February showed that prices paid for raw materials and prices received for goods increased compared to January. The core personal consumption expenditures price index increased 0.6% for the month of January; consumer spending rose more than expected as prices increased, jumping 1.8% for the month vs. the estimate for 1.4%.
February 17, 2023, Weekly Stock Market Return Recap. U.S. equities finished lower for the second consecutive week with economic data showing persistent inflation and hawkish comments from Fed members, weighing on market sentiment. The equity index loss leader was the Nasdaq down -0.6%, followed by the S&P 500 finished off -0.3% and the Dow Jones -0.1%. This week six-month Treasury bills topped 5% for the first time since 2007, marking a sign that markets are coming around to our view that overnight rates will go above 5% and stay for a while. Credit card debt hit an all-time high — just shy of $1 trillion — in the final three months of 2022, delinquencies among borrowers accelerated. Indeed, personal credit balances grew $61 billion in the fourth quarter from the previous one to $986 billion, marking the largest quarterly increase and the highest total since the series tracking began in 1999. February 10, 2023, Weekly Stock Market Return Recap. The S&P 500 fell -0.9% on the week with all 11 broad sectors of the benchmark index ending in negative territory. The market continues to receive strong job data, fueling concern that the Fed will continue to raise interest rates and harm the economy. This is also why the fear-gauge CBOE Volatility Index (VIX) was up 5.5% to 20. Also, bonds finished lower on the week pushing yields to the highest in over a month. February 3, 2023, Weekly Stock Market Return Recap. The broad US equity indexes finished mixed on the week, led by the Nasdaq +3.3% followed by the S&P 500 +1.05, while the Dow Jones lost -0.15%. Markets were uplifted by incremental declines in inflation and a lower option of 0.25% Fed rate increase. Also, The Federal Reserve comments offered silver lining: “While recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path,” and “it’s good news that declines in inflation in recent months have not come at the expense of a weaker labor market.” January 28, 2023, Weekly Stock Market Return Recap. For the week, the Dow finished up 1.8%, the S&P 500 added 2.5%, and the Nasdaq soared 4.3%. The Commerce Department’s latest Personal Consumption Expenditures (PCE) Price Index showed inflation eased with prices only rising 4.4% from a year ago. The market is also reacting to disparate regional Fed Bank comments, ranging from hawkish to dovish, but most recently St. Louis Fed Bank President James Bullard said the central bank is close to achieving restrictive monetary policy and he favors interest rates topping 5% sooner than later. On the corporate earnings front, FactSet noted: “The Q4 earnings season for the S&P 500 continues to be subpar. While the number of S&P 500 companies reporting positive earnings surprises increased over the past week, the magnitude of these earnings surprises decreased during this time. Both metrics are still below their 5-year and 10-year averages.”
January 20, 2023, Weekly Stock Market Return Recap. The S&P 500 declined -0.7%, the Dow fell -2.7% and the Nasdaq rose +0.6% on the week. The fourth quarter earnings season for the S&P 500 is not off to a strong start: of the 11% companies that have reported only 67% have reported earnings above estimates, which is below the 5-year average of 77%. The weekly economic news showed weaking with the Producer Price Index ("PPI") for December with a decrease in costs, down 0.5% from the prior month while December retail sales dropped sharper than expected as consumer spending slowed in the traditionally strong holiday season. Federal Reserve Bank of Cleveland President Loretta Mester said inflation growth is finally starting to slow but interest rates need to rise above 5%. Recall, Fed Chair Powell comments on 1/10 Tues, Fed taking 'measures that are not popular' to rein in inflation. January 13, 2023, Weekly Stock Market Return Recap. The US equity indexes all jumped on the week led by the Nasdaq +4.8%, followed by the S&P 500 +2.7% and Dow Jones +2.0%. The market expectations for an early than conveyed interest rate pause by the Fed continues to seesaw, but now with the expectation that the Fed’s hawkish stance will cave earlier. December’s CPI report showed prices continue to eke downward, by 0.01%, heightening hopes the Fed may pause rate hikes sooner than its current stance. Also, early signs of earnings strength by banks and airlines show the bottom lines in these sectors remain healthy. We believe the stock market will continue to be impacted more by sentiment waves attached to what the Fed may, or may not do, with rate increases this year. January 6, 2023, Weekly Equity Market Recap. The first week of January for the S&P 500 was marked by consistent declines then after a strong recovery on Friday, finishing positive +1.45%. Indeed, stocks on Friday were moved sharply higher by softer U.S. wage data and an unexpected contraction in the Institute of Supply Management's December services reading. However, the performance results likely come to no surprise to investors given a recent survey found that over half of US investors were so terrified about portfolio losses that they checked their retirement balances three times a week. 2022 brought a tumultuous year with significant losses across asset classes spurred by seven rate hikes by the Fed, 40-year high inflation, recession worries, geopolitical tensions, and supply chain disruptions. It is no surprise that stocks fell far more than the worst possible outcome forecast by Wall Street and marked the largest broad market equity decline since 2008. Market volatility was also elevated on the year with the S&P 500 dropping over -5% on four monthly occasions and jumping +5% on three monthly occasions. Given the many headwinds, it is also not surprising the S&P 500 dropped into bear market territory (> -20%) on three different periods in 2022. The biggest equity market index loser for the year was the tech-laden Nasdaq which plummeted -33%, followed by the S&P 500 which delivered a total return of -18%. Even the Aggregate US Core Bond index was clobbered with a record setting -13% loss in 2022.
Looking back to our 2022 Market Outlook, we outlined many headwinds and negative return probabilities: “we have lower expectations than past years and expect choppy U.S. equity markets... with downside risk of -9%. For perspective, the past few years we did not foresee downside volatility and therefore did not provide a range-bound forecast.” Further, we noted “risk is elevated by headwinds in the form of rising prices, higher cost of money (rates higher), slower economic growth and no more Fed or Government stimulus in play. The 2022 investment environment is further compounded with unknowable outcomes related to the potential for new lethal virus variants and escalating geopolitical risks, particularly Russia & China.” With respect to some highlighted investment strategies in last year’s “2022 Equity Market Forecast” we noted: “Rising rates and inflation have an inverse impact (loss) on bond prices. Therefore, we will look to reduce traditional fixed-income allocations, which also have already partly been executed to some degree and look to replace with treasury inflation-protected securities (TIPs). We will also increase asset class exposure to real assets (gold, commodities, and real estate), loss buffer ETFs, absolute-return funds, along with increasing specific stock/sectors plays.” In hindsight, a good amount of our 2022 cautionary investment thesis was on point with cutting fixed income while adding to our liquid alternative funds and real assets, including sharply overweighted positions in commodities (COMT) and energy (XLE). We also took several risk-off tactical portfolio adjustments to client portfolios in the first quarter (Q2FY22) as early inflationary signs appeared more robust and stickier than the Fed and Treasury were conveying. Our top four equity allocations were liquid alternative funds which we coined as the “four horsemen” and which overall delivered a meaningful asset class gain that was instrumental to client portfolios: Catalyst/Millburn Hedge Strategy (+7.7%), Standpoint Multi-Asset Investor (+3.4%), Grant Park Multi Alternative Strategies (-1.9%) and Campbell Systematic Macro (+30.6%). During the year we upped our allocations to each one of these four horsemen into the 4-5% range. Assuming an overall 20% allocation to these four horsemen, then these overweight positions brought an amalgamated positive return attribute of +2% to the client portfolios on the year. Similarly, our outsized allocations to energy and commodities, up +64% and +19% respectively, brought additional resiliency during these turbulent times. December 23, 2022, Weekly Equity Market. The S&P 500 broad US equity market index logged its third straight weekly decline (-0.2%) on resilient economic news, which gave little hope for a pause in near-term rate increases by the Federal Reserve. The number of Americans filing for initial jobless claims came in lower than expected, rising by 2K to 216K compared to the anticipated 225K. The data showed that the labor market continued to remain stubbornly resilient. The final measure of third quarter GDP growth was also revised upward to 3.2%, more than the expected 2.9%, signaling a robust economy despite the Fed's aggressive rate hikes. Furthermore, growth metrics and stronger consumer confidence fueled investor worries over a hawkish Fed heading into next year. December 16, 2022, Weekly Equity Market. As hope fizzled for a Fed pivot to a more dovish rate hike outlook, the S&P 500 fell 2.08% for the week and moving its December losses at 5.58%. Similarly, the Dow and Nasdaq slid 1.7% and 2.7%, respectively. Indeed, Federal Reserve Chair Jerome Powell made it clear this week that rate cuts aren’t in the cards. The federal funds rate has moved to a new range of 4.25% and 4.5%, marking the highest level since December 2007. The 50-basis point rate hike comes after the Fed raised rates by 75 basis points at each of the past four policy meetings – the fastest clip since the 1980s. The Fed left in the statement wording that it anticipates “ongoing increases” in interest rates, implying it does not intend to pause rate hikes in March. Chair Powell continued to reiterate that the labor market needs to see higher unemployment. This sentiment is driving Wall Street's growing concern about an over-aggressive rate policy because the unemployment rate is considered a lagging economic indicator of Fed action. Powell comments also included "have a long way to go to get back to price stability." Fed officials now see raising the benchmark interest rate to a peak of 5.1% in 2023, an extra 50 basis points over the previously projected 4.6% back in September. December 9, 2022, Weekly Equity Market Recap. For the week, the S&P 500 declined 3.4%, the Dow shed -2.8% and the Nasdaq dropped 4%. U.S. producer prices rose slightly more than expected in November with PPI ticking up by + 0.3% for the month and 7.4% from a year ago. The news reconfirmed inflation still is hurting the economy and set the stage for the Fed rate hike on the 14th of the month to be 0.5%-0.75%. However, job-listing website Indeed said wage growth for November has eased by almost one-third compared to the March peak and is on track to return to pre-pandemic levels in late 2023. December 16, 2022, Weekly Equity Market. As hope fizzled for a Fed pivot to a more dovish rate hike outlook, the S&P 500 fell 2.08% for the week and moving its December losses at 5.58%. The Dow and Nasdaq slid 1.7% and 2.7%, respectively. Indeed, Federal Reserve Chair Jerome Powell made it clear this week that rate cuts aren’t in the cards. The federal funds rate has moved to a new range of 4.25% and 4.5%, marking the highest level since December 2007. The 50-basis point rate hike comes after the Fed raised rates by 75 basis points at each of the past four policy meetings – the fastest clip since the 1980s. The Fed left in the statement wording that it anticipates “ongoing increases” in interest rates, implying it does not intend to pause rate hikes in March. Chair Powell continued to reiterate that the labor market needs to see higher unemployment. This sentiment is driving Wall Street's growing concern about an over-aggressive rate policy because the unemployment rate is considered a lagging economic indicator of Fed action. Powell comments also included "have a long way to go to get back to price stability." Fed officials now see raising the benchmark interest rate to a peak of 5.1% in 2023, an extra 50 basis points over the previously projected 4.6% back in September. December 2, 2022, Weekly Equity Market Recap. All major US equity indexes finished higher for the week led by the Nasdaq +2.1%, followed by the S&P 500 +1.1% and Dow Jones +0.2%. Stocks were lifted when the Federal Reserve Chair Jerome Powell set the table for a lower than expected 50-basis point rate hike at the Fed's December policy meeting (versus 0.75%), saying in a speech on Wednesday it makes sense to "moderate" rate hikes as the Fed approaches its estimated peak in benchmark interest rates. Powell also commented “The time for moderating the pace of rate increases may come as soon as the December meeting.” However, stocks retrenched a bit from their weekly highs after the November jobs report came in hot with Payroll rising by 263,000, holding the unemployment rate at 3.7%. The Department of Commerce reported that the core personal consumption expenditure (PCE) price index (excluding volatile food and energy items) – the favorite inflation gauge of the Fed – increased 0.2% in October compared with 0.5% in September. November 25, 2022, Weekly Equity Market Recap. All three US equity indexes ended the week higher on the short holiday week. The Dow led up +1.78%, followed by the S&P 500 +1.53% while the tech-heavy Nasdaq lagged but still finished up +0.72%. The equity markets were buoyed by Fedspeak where the minutes from the November Fed meeting showed that the central bank anticipates slowing the pace of interest rate hikes going forward. The market is also looking for signs of a slowing economy to boost hopes of a less hawkish Fed and the week showed some sluggish signs. The number of Americans filing new claims for unemployment benefits rose more than expected and U.S. business activity contracted for a fifth straight month in November.
November 18, 2022, Weekly Equity Market Recap. All major equity index averages posted losses for the week, led by the Nasdaq -1.57%, followed by the S&P 500 -0.69% - the Dow Jones finishing about flat. We can expect choppiness with Fed hikes hitting economic and earnings growth ahead. Fedspeak was rather muted on the week except for Collins who said services inflation is still too high. However, recent CPI and PPI data indicate that inflation has finally peaked, and price spikes are likely behind us. There is also a push and pull between bouts of good and bad economic news. For example, there has been mass layoffs announced in tech companies while bellwether companies like Amazon (laying off 10k+) and Federal Express (furloughing drivers) have sent negative economic signals. Increases in interest rates are also hurting housing, with existing home sales falling for a ninth straight month in October; marking a two-year low pace of 4.4 million. In contrast, consumer balance sheets are still in good shape with around $1.7 trillion in excess savings and this was reflected with retail sales rising to a seasonally adjusted 1.3% in October compared with September. November 11, 2022, Weekly Equity Market Recap. The S&P 500 surged 5.9% for the week on news that US consumer prices rose 7.7% in October, marking the slowest pace of annual increase since January. The CPI inflationary rate was down from 8.2% in September and lower than the 7.9% estimated by economists. Investors have been waiting for signs of when inflation might start to abate, which would show the Fed that the rate increase actions are starting to taper down consumer prices. Equity markets also got a boost from China relaxing its strict anti-COVID measures, which have been damaging the world’s second-largest economy. The S&P 500 is still off by roughly 16 percent this year while the Nasdaq is down around 28% on the year. November 5, 2022, Weekly Equity Market Recap. After a two-week winning streak, all the major averages finished down. The S&P and Nasdaq fell 3.35% and 5.65%, respectively, while The Dow shed 1.4%. The U.S. Federal Reserve raised interest rates Wednesday by 75 basis points for the fourth straight meeting while hinting at a potential slower pace in the future as the central bank continues to try to tame multi-decade highs in inflation. The rate hike brings the central bank’s policy rate, the federal funds rate, to a new range of 3.75% to 4% — its highest level since 2008 — from a current range between 3% and 3.25%. Fed Chairman Jerome Powell said the interest-rate peak will likely be higher than the 4.50% to 4.75% committee members previously anticipated and said 'very premature' to talk about pause. This statement suggests that more than another 0.75% of rate increases are likely to be expected before the Fed halts its series of interest rate hikes. For example, Powell said the central bank expects further rate hikes at some level will be appropriate to attain a level that is “sufficiently restrictive” to get inflation back down to its 2% goal. The U.S. economy added more jobs than expected in October, but job unemployed rose to 3.7%. Corporate earnings have mostly held up but teetering toward degrading into a recession. October 28, 2022, Weekly Equity Market Recap. The S&P 500 posted its second consecutive weekly gain since August with a +2.5% uptick, while the Dow Jones rose +2.6% and the tech-laden Nasdaq composite jumped 2.9%. Friday’s rally did most of the work on the heels of a surprise earnings profit jump by Apple (AAPL) and Intel (INTL). On the week, the U.S. Bureau of Economic Analysis' core personal consumption expenditures for September was in line with expectations, while pending home sales sharply dropped by more than expected. However, signals of economic weakness persisted with the personal saving rate dipping to 3.1%, its lowest level since 2005. Further, Bloomberg reported that rent growth is finally starting to tail off, while a CNBC survey showed that the percentage of Americans living paycheck to paycheck is near an all-time high. Finally, other Tech companies disappointed on the earnings week, including Meta Platforms (META), Google (GOOGL), and Microsoft (MSFT).
October 21, 2022, Weekly Equity Market Recap. For the week, both the Dow Jones and S&P 500 equity indexes rose nearly 5%, while the Nasdaq gained over 5%. Treasury yields also continued to rise, with the 10-year note yield spiking above 4.2, its highest level in almost 15 years. Morgan Stanley strategist Michael Wilson, who has held one of the most bearish views for stocks, changed his stance some about ‘tradable tactical rally looks likely, with S&P 500 rising to as high as 4,000 as good a guess as any.’ Also, better-than-expected S&P 500 earnings growth expectations were upped to 3.1% from a 2.8% on the week. October 14, 2022, Weekly Equity Market Recap. For the week, the US equity markets finished mixed with the Dow up +1.15%, the S&P 500 down -1.56% and the Nasdaq off -3.11%. The Consumer Price Index (CPI) rose 8.2 percent in the year through September, another tenacious high result driven by more costly food, rent and other items. CPI increased 6.6 percent after stripping out fuel and food. Overall inflation climbed 0.4 percent in September, much more than last month’s 0.1 percent reading. Similarly, September Producer Price Index (PPI), a measure of prices at the wholesale level, rose 0.4% in September after falling 0.2% during the prior month as inflation also persisted on the manufacturing-side. Finally, US retail sales were unexpectedly unchanged in September as high inflation and rising interest rates dampen retail purchase demand for goods. October 7, 2022, Weekly Equity Market Recap. The US equity markets seesawed on the week with a strong positive start but gave much back toward the end of the week. The major equity averages still ended the week higher with the Dow finishing up +2% for the week, while the S&P gained +1.5% and the Nasdaq +0.7%. What turned the positive tide in the markets was again, “all about the Fed.” In the second half of the week, released data showed that the unemployment rate dropped to 3.5% and this restoked fear of aggressive interest rate hikes ahead. Indeed, the Fed remained hawkish Friday, with Fed Governor Christopher Waller saying that “more needs to be done and rate hikes shouldn't pause until inflation moderates.” Investors will be anxious ahead of next week's inflation figures for September. Client portfolio allocation weightings remain high in cash, CDs, TIPs, energy, commodities and the four liquid alternative funds, which I have coined the “four horsemen” as these large holdings have really done a bang-up job in offsetting market losses on the year. Clients also have a few remaining loss buffer equity ETFs, but most have maxed out the 10% loss buffers and were liquidated into cash or CDs. Since we can invest in the entire universe of available CDs, we have used the rate increases to park more cash in short-term (1-3Mo) CDs yielding between 2.8%-3.3%. Then, after the expected Nov and Dec Fed hikes, we expect to take advantage of 5%+ CD yields in 5-year range maturities offer FDIC-insured guarantees. September 30, 2022, Weekly Equity Market Recap. S&P 500 -2.9% week, -9.3% month, -4.88% third quarter (Q3) and -23.7% YTD while US Aggregate Bond Index -13.2% YTD. For the week, most of the bearish equity sentiment was driven by global economic issues of record-high German inflation and the U.K. government's defense of its tax cut plan. However, stateside, Initial jobless claims came in below consensus at the lowest level since April. This, in turn, drove bond yields higher (bonds lower) as the Fed's actions have yet to slow the labor market. Therefore, several Federal Reserve officials continue to support hiking rates and holding for longer. Wall Street analysts forecast the S&P 500’s earnings growth rate for the Q3 will be just 3.2%, which would be the lowest growth rate since Q3 in 2020. As we head into Q3 earnings season, companies like Nike (NKE), Meta Platforms (META), and CarMax (KMX) have indicated a worsening economic business climate ahead. Goldman Sachs recently slashed its year-end target for the S&P 500 to 3,600 (S&P 500 @3,585) from 4,300. September 23, 2022, Weekly Equity Market Recap. The Fed remains engaged in one of the most aggressive rate-hiking cycles in history and that has not only weighed on valuations with downward pressures but has also spiked market volatility. All the major equity indices experienced a fifth negative week in the last six with the S&P 500 dropping 4.7%, the Dow giving up 4.0% and the Nasdaq falling 5.1%. Recent market weakness clearly reflects still-hot inflation and a "don't fight the Fed" marching orders. On Wednesday, the Federal Reserve raised interest rates by another 0.75% while guiding for another 1.25% in hikes over the remaining meetings this year, for November and December. Further, Powell pledged to "keep at it until the job is done," paying homage again to Fed Chair Paul Volcker's memoir, "Keeping at It." The Fed has hiked its policy rate by 300 basis points (bps) this year, including a third 75 bps rate hike delivered this week, and we expect the Fed to reach its "terminal" rate of 4.75-5.00% by February 2023. Brokerage firm Goldman Sachs said it doesn't see the Federal Reserve lowering interest rates before 2024. This overhang adds to existing corporate earnings concerns, particularly lowered expectations and potential missed Q3 earnings targets. The only silver lining is income opportunities are growing as the yield on 10-year U.S. Treasurys jumped above 3.50%, the highest level since 2011. September 16, 2022, Weekly Equity Market Recap. Dire economic news from the CEO of FedEx, along with a hot Consumer Price Index (CPI) report, drove equity markets down with the largest one-day decline since June of 2020. The market sell-off this week leaves the S&P 500 index just 5.6 percent above the bottom reached in June, marking a weekly loss close to 5 percent. On the week, FedEx expressed grave concerns over the work economy: “We are seeing volume decline in every segment around the world,” and then Subramaniam added, “So we just assume at this point that economic conditions are not going to be good.” Another contributing factor was investors were looking for cooling CPI data in hopes to trigger the Fed to not increase rates at their current pace, but with a surprise uptick, the market turned sharply negative. These challenges added to other lingering worries about supply chains, the war in Ukraine and an emerging energy crisis.  September 9, 2022, Weekly Equity Market Recap. The US equity markets posted their first weekly positive returns since mid-August: the Nasdaq jumped 4.1%, the S&P 500 gained 3.6% and Dow advanced 2.7%. Given it was a very light week for economic data, the markets took a breather with a technical bounce. The economic data points continue to demonstrate that the economy remains resilient with job claims lower than expected and ISM Service Index up in August.
September 2, 2022, Weekly Equity Market Recap. Another bear market rally has withered away as major stock averages slide for third week, as the Nasdaq posts six-day losing streak. The S&P 500 rallied 17% from it’s mid-June low through mid-August, offering investors hope that the bottom was in, but then the second half of August ultimately sank the index by -4.2% for the month. On the week, the Dow fell 2.99%, the S&P 500 declined 3.29% and the Nasdaq dropped 4.21%. Now we are heading into September, traditionally one of rockiest months for the stock market. The stock market recovery has been clobbered by new hawkish comments from Federal Reserve officials signaled that interest rate hikes aren’t going away anytime soon. The Fed left no doubt as to why they are on the investment scene today, with a mission to destroy inflation. And for investors, the message is "Don't fight the Fed." The unemployment rate rose to 3.7%, only a mere two-tenths of a percentage point higher than expectations, which did not give much hope that economic frailties will deter the Fed from raising rates this month by 0.75%. August 26, 2022, Weekly Equity Market Recap. Fed Chair Powell's Wyoming speech rattled more than the Jackson Hole Symposium, sending the US markets sharply downward. For the week, the Nasdaq slid 4.4%, the Dow lost 4.2%, and the S&P 500 fell 4%. After a sizeable relief rally, reality took hold with Powel’s hawkish comments on interest rates at Jackson Hole as investors price in the expectation of aggressive interest rate hikes and a slowing economy. Power said lowering inflation to the 2% target is the central bank’s “overarching focus right now” and pledged that the central bank will “use our tools forcefully” to attack inflation. That translates into the Fed not backing off several rate hikes ahead with at least a 0.50% to 0.75% increase next month. On the economic front, Q2 GDP decline was reduced to a -0.6% growth rate versus -0.9% in the Advance report, which really just reconfirms two consecutive quarters of GDP losses. New home sales nosedived 12.6% to 511k in July, much weaker than expected as rising mortgage rates and declining affordability weaken housing demand. Indeed, sales dropped 7.1% to 585k in June. Then, Blackstone (BX) announced that its subsidiary landlord Home Partners of America would halt single-family home purchases across 38 metro areas, or roughly half of its geographic footprint. The subsidiary sees the risk of national home price downside outweighing the reward of extremely strong rent growth. When one of the biggest institutional housing players leaves the game, it has yet another ominous signal for housing. The only silver lining for the week was personal income increased 0.2% in July and consumption was up 0.1%. August 19, 2022, Weekly Equity Market Recap. All three major equity indexes registered losses for the week with the S&P 500 down 1.2%, the Nasdaq off 2.6% and the Dow sliding 0.2%. After a few weeks of recovery gains, it appears the US stock market is entering a tug of war phase where it will likely just fluctuate until harder data, or the Fed, gives the directional signal. Yes, the jobs market, consumer spending and corporate earnings remain more resilient than expectation, but these trends will only make the Fed’s rates actions likely higher in the near-term. On a historical basis, the Federal reserve has never ended a rate hiking cycle with the Fed Funds rate lower than CPI, so assuming the Fed Funds rate around 3+ percent range by year end and inflation dropping back to 5% range, then there would likely be several more rate hikes hanging over 2023 forecasts. Meanwhile, we have good and the bad for the market to process, starting with the positive being with 90% of S&P 500 companies now having reported earnings, aggregate EPS growth for the second quarter (2Q) came in at 9.7%, well above the original estimates of 5.6%. Furthermore, 2Q corporate revenue growth of 13.7%, which was also better than expected. In contrast, on the negative side, home sales fell nearly 6% in July, and dropped about 20% from the same month a year ago, signaling that the housing market is sliding into a recession. Further, Atlanta Fed's GDPNow index was nudged down to a 1.8% growth rate for Q3 versus the prior 2.45% estimate from August 10. The Leading economic index declined 0.4% to 116.6 in July after falling 0.7% to 117.1 in June, marking the fifth straight monthly decline. In short, these contrarian trends will likely make the stock market rather choppy for a while. August 12, 2022, Weekly Equity Market Recap. The S&P 500 jumped 3.25% on the week, followed by the Nasdaq Composite higher by 3.08% and the Dow up 2.92%. Investors continue to celebrate signs that inflation is peaking with the Consumer Price Index coming in flat from June to July, thanks in large part to falling fuel prices. The Bureau of Labor Statistics July's Producer Price Index ("PPI") reading also showed a decline of 0.5% in July compared to June with the year-over-year gain of 9.8%; this was the first monthly decline since April 2020. Initial jobless claims released by the U.S. Department of Labor, rose to 262,000 last week. This was the highest figure since early November last year. The recession risk variables continue to grow with bank lending standards tightened through the warning level, consumer savings continue to drain, new household delinquencies up, and 3m-10yr interest rate inversion imminent. However, it is important to keep an open mind and consider a wide range of possible outcomes for both the economy and the stock market. Often times historical guidance is helpful with regard to the understanding the positive current stock market trends. Case in point, there were protracted down markets of 1973-1974, 2001-2003 and 2008-2009 where each experienced multiple bear market rallies. While this year’s bear market has experienced five through August, the latest, starting in mid-June, has seen the year-to-date equity market decline diminish from 24% to just 10%. While this represents a sizeable gain, it is, in fact, in line with the average range of bear market rallies in previous cycles  August 5, 2022, Weekly Equity Market Recap. On positive corporate earnings news along with Nonfarm payrolls beating expectations in July, the S&P 500 rose 0.4%, the Dow was largely flat, as the Nasdaq jumped 2.2%. However, from a broader perspective, the equity markets appear to cheer slowing economic news, an important driver for receding inflation, given this could be a catalyst for a less hawkish Federal Reserve. July Manufacturing Purchasing Managers' Index ("PMI") showed a slowdown in new orders and demand. US ISM Manufacturing PMI is at a current level of 53.00, down from 56.10 last month and down from 60.60 one year ago. This is a change of -5.53% from last month and -12.54% from one year ago. Further, "Job Openings and Labor Turnover Summary" (JOLTS) revealed there were 605,000 fewer job openings in June than in May, implying slumping economic growth may be starting to impact the labor market. Finally, Federal Reserve Bank of Richmond President Thomas Barkin said the central bank will get inflation growth back under control, but a recession may be inevitable
July 29, 2022, Weekly Equity Market Recap. The U.S. equity market continued to rally with all sectors up this week on corporate earnings growth and renewed expectations the Fed has (perhaps) only one more rate hike ahead. Also, early signs in the earnings season indicate that investors are seeing slowing growth that is not as bad as feared. The Federal Reserve delivered another 75-basis-point rate hike at the July Federal Open Market Committee (FOMC) meeting, while economic news demonstrated that the rate hikes are achieving their aim of slowing the economy with data released this week by the Bureau of Economic Analysis showing GDP shrinking at an annual rate of −0.9% in Q2 2022 after contracting −1.6% in Q1 2022. Technically, two quarters of declining GDP is considered a recession, however, many are pointing to the labor market remaining unusually strong, with 2.74 million jobs added to payrolls year-to-date.  July 15, 2022, Weekly Equity Market Recap. US equity markets were poised to post another round of sharp losses on the week until Friday’s strong rally, leaving the US stocks in the red: The S&P 500 finished down 0.9% and the Dow was off 0.2% while the Nasdaq dropped 1.6% on the week. Equity markets dropped on news that U.S. inflation growth for June came in higher than expected with the Consumer Price Index rising 9.1% year-over-year. Investors fear that this could prompt the Fed to consider raising interest rates by as much as 1.0%, instead of the previously anticipated 0.75% increase, later this month. This also moved the benchmark U.S. Treasury yield curve (two-year vs 10-year), which is a strong historical signal of impending recessions, to its largest inversion since November 2000. However, on the final day of trading was positive after retail sales rose more than expected in June, pointing to continued strength among U.S. consumers. Elsewhere in economic releases, consumer sentiment rose slightly in July to a reading of 51.1, per the University of Michigan's latest survey.
July 8, 2022, Weekly Equity Market Recap. For the week, the Nasdaq closed up 4.6%, while the S&P 500 gained 1.9% and the Dow returning about 0.8%. Federal Chair Powell indicated either a 50 or 75 basis point interest rate hike is on the table during their late July meeting; however, most officials agreed that a 75-bp hike will be the most likely outcome. The Fed is hell bent on restraining inflation pressures which indirectly will keep financial assets down. However, with rising rates, the US dollar ended the week higher for the 11th time in the last 14 weeks. July 1, 2022, Weekly Equity Market Recap. Despite Friday’s gains, all of the major equity indexes posted their fourth down week: The S&P 500 finished down 2.2%, the Dow lower by 1.3% and the Nasdaq fell by 4.1%. S&P 500 posted a more than 16% second quarter loss, marking its biggest one-quarter fall since March 2020. The Dow Jones lost 11.3% in the second quarter, putting it down more than 15% for 2022, while the Nasdaq suffered its biggest quarterly drop since 2008, losing 22.4%. Investors remain focused on warning signs from several companies that lowered their profit guidance, adding to investor concerns that persistent inflation at decades long highs could continue to put pressure on share prices. The Institute for Supply Management showed that the month of June was weaker than expected with its index of national factory activity dropping to 53 for the month, the lowest reading since June 2020. Michael Burry of “The Big Short” recently warned that the upheaval in financial markets is only halfway through and that companies will see earnings decline next. June 25, 2022, Weekly Equity Market Recap. All major US equity indexes wrapped up a big comeback week for stocks on indicators that the economy may be slowing which buoyed hopes that the Fed may ease on its aggressive rate hike path. The S&P 500 jumped 6.5% for the week and the Nasdaq Composite soared 7.5% while the Dow Jones finished 5.4% higher. The U.S. equity market had its first positive week after falling for three consecutive weeks. The top preforming sectors were health care, consumer discretionary, and real estate, while industrials, materials, and energy were the worst performers. Fed Chair Jerome Powell said inflation continues to surprise to the upside and it will be challenging for the central bank to engineer a "soft" economic landing.  June 17, 2022, Weekly Equity Market Recap. In reaction to the Federal Reserve’s sharp interest rate hike of 0.75% and lowered expectations of economic growth, all US equity market indexes sharply sold off on the week: The S&P 500 lost 5.79%, Dow finished off 4.79% and the Nasdaq lost 4.78%. For the year, the S&P 500 is now down -23%, Nasdaq -31% and even the Core US Aggregate Bond (AGG) is now below -11%. The Fed hike was the biggest increase since 1994 and removed a reference to expectations the labor market will remain strong. The Central Bank also said it is "strongly committed" to bringing inflation back to its 2% goal, where previously that has been downplayed. Moreover, Fed officials significantly cut their outlook for 2022 economic growth, now anticipating just a 1.7% gain in GDP, down from 2.8% from March. Reading the tea leaves translates into unemployment going up and the soft recession landing being more unlikely given the Fed appears willing to scuttlebutt the economy to get inflation down. According to the “dot plot” of individual members’ expectations, the Fed’s benchmark rate will end the year at 3.4%, an upward revision of 1.5% from the March estimate. Luxury home sales fell 17.8% year-on-year during the 3-month period ended April 30th, the largest drop since the onset of the COVID pandemic. Non-luxury home sales also declined to a lesser extent, falling 5.4%. Our active management of multiple investment asset classes based on modern portfolio practices, relative valuations and economic/market prospects remains effective in mitigating portfolio losses. However, insofar as our inflation hedges in commodities, energy and precious metals did not have a strong showing on the week, energy and commodities in particularly have nonetheless had a great year for returns. Also, our four core alternative funds have done a stellar job, with one up 30%, another +7% with the other two now roughly flat for the year. June 10, 2022, Weekly Equity Market Recap. On stagflation fears, the S&P 500 dropped 2.9% in its ninth losing week in the last 10, leaving the broad equity index down 18.7% from its record high back in early January. Similarly, the Dow Jones Industrial Average sank 2.7% and the Nasdaq fell 3.5% on the week. Our client portfolios continue to benefit from risk hedges where gold (GLD) was up 1.14% and commodities up 0.95% (COMT) on the week, while energy (XLE) only gave back -0.89%. Further, the four core alternative funds all remain up for the year which also have helped mitigate the losses experienced in the capital markets. Finally, cash remains high, serving two purposes: 1) enable future bottom fishing of bargain priced stocks and 2) help weather the market volatility. Inflation unexpectedly hit a new 40-year high in May as gas, food and rent prices jumped with the consumer price index increasing to 8.6% annually, up from 8.3% the prior month and the largest rise since December 1981. Global growth is now projected to drop from 5.7% in 2021 to 2.9% in 2022 and is significantly lower than 4.1% that was anticipated in January. It is expected to hover around that pace over 2023-24, as the war in Ukraine disrupts activity, investment, trade in the near term, pent-up demand fades, and fiscal and monetary policy accommodation is withdrawn. How is US consumer spending holding up in the throes of inflation outpacing wage gains for 13 straight months? 1) Americans are saving less: 4.4% savings rate (lowest levels since 2008) and 2) Americans are borrowing more with a 7.5% increase in credit over the past year (largest since 2011).  June 3, 2022 Weekly Equity Market Recap. All three US equity indexes declined over -0.9% or more for the week. The S&P 500 index recently traded at 20x its earnings over the past 12 months, according to FactSet, down from the 23.5x at which it ended last year and above the 10-year average of 18.7x. U.S. employers added 390,000 jobs last month, the slowest pace of growth since April of last year. In the past week, mortgage applications to purchase homes fell to their lowest level since 2018. According to the Mortgage Bankers Association, volume was 14% lower than the same week a year ago. JPMorgan Chase CEO, Jamie Dimon, one of the most revered CEOs in America, is predicting an economic "hurricane" caused by the war in Ukraine, rising inflation pressures and interest rate hikes from the Federal Reserve. Dimon also said that the Fed is starting to unwind its bond portfolio, a process known as quantitative tightening, at the same time it is raising interest rates. The University of Michigan's final consumer sentiment measure fell to 58.4 in May, down from 59.1 earlier in the month, marking the lowest level in more than 10 years. We took further risk-off actions for client portfolios during this recent period of market strength.
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December 2023
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