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.
May 31, 2022 Monthly Stock Return Recap: Though it was a volatile trading month stocks finished slightly down in May from the previous month close. The S&P 500 dipped -0.6% to 4,132, The Dow Jones Industrial Average fell 222.84 points, or -0.7% while The Nasdaq Composite eased -0.4% to 12,081.39. With the high degree of asset diversity of client portfolio holdings, including inflation hedges, the vast majority of client portfolios finished positive for the month.
May 27, 2022 Weekly Equity Market Recap. All three major equity indexes jumped over 6% this week, which hasn’t happened since November 2020: The S&P 500 gained 6.6%, the Dow was up 6.2%, while the Nasdaq was the outperformer, up 6.8%. Over $21 billion flowed into global equity funds on the week thru Wednesday, the largest inflow in 10 weeks, according to BofA Global Research. US stocks surged on the notion that early signs of a possible recession are in play, so the Fed won’t be able to hike rates after June and July. The U.S. economy unexpectedly dropped by 1.4 percent annualized rate in the first three months (Q1) of 2022 after more than a year of rapid GDP growth, according to a Bureau of Economic Analysis. Last year, for example, the U.S. economy grew by 5.7 percent, the fastest full-year clip since 1984. However, US inflation-adjusted consumer spending increased in April by the most in three months, indicating households were holding up in the face of persistent price pressures by dipping into savings. The Fed announced on Tuesday they may raise interest rates to high enough levels to purposely fuel a deceleration in economic growth to combat surging inflation – while also approving a plan to shrink the Fed's $9 trillion portfolio starting June 1. The information comes shortly after Fed Chairman Jerome Powell said 0.5% increases would likely be needed at the next several meetings. Powell emphasized that to bring down prices, the unemployment rate may need to rise. Though client portfolios remain allocated toward defensive positioning, portfolios were nonetheless buoyed by the weekly rally.
May 20, 2022 Weekly Equity Market Recap. S&P 500 is down for seventh week in a row as a bear market looms. On the week, the S&P 500 dropped 3.1%, Dow Jones declined 2.8% and the Nasdaq Composite fell 3.8%. On Friday, the broad equity market S&P 500 benchmark briefly touched bear market territory after falling over 20% from its January high of 4,797, before erasing losses to close at 3,901. Our client portfolios continue to weather much of the volatility as we have thoughtful risk controls in place and have been active with portfolio adjustments to align with this stagflation investment climate, particularly over the past four months. For example, client portfolios have been largely insulated from the massive market losses due to thoughtful asset diversity, purposeful high cash, loss buffer equity ETFs, several intentional inflation hedges and helpful alternative funds having low correlation to US equities. Historically, should the economy be entering a recession then stocks typically enter bear markets, and things will get worse, down -34.8% on average and lasting nearly 15 months. However, in the event the economy avoids a recession, the bear market bottoms at -23.8% and lasts just over seven months on average. The May University of Michigan consumer sentiment survey data showed that sentiment had dipped to low levels not seen since 2011.
May 14, 2022 Weekly Equity Market Recap. On Friday, the S&P 500 gained 2.4% and the Nasdaq climbed 3.8% while the Dow Jones closed up 1.5%. Despite Friday’s bounce, all three major U.S. indexes fell for the week: The Dow Jones, the S&P 500, and the Nasdaq slipped 2.1%, 2.4%, and 2.8%, respectively. The S&P 500 is on pace for one of its worst plummets since the March 2020 bear market and much of the carnage has occurred in just the last two weeks. The S&P 500 has fallen to a 52-week low, with more than half of the stocks in the S&P 500 now trading below their 200-day average. While the first-quarter earnings season for the S&P 500 has reflected respectable profits for companies, concerns over inflation, higher future interest rates, and the potential for a deteriorating economy have rattled investors. This worrying investment climate is not only giving investors pause, but also forcing investors to reevaluate what they are willing to pay for stocks in the throws of several strong headwinds. Our investors continue to benefit from early portfolio actions taken in the form of reduction stock and bond allocations, while increasing exposure to energy, commodities, gold, and alternative funds.
May 7, 2022 Weekly Equity Market Recap. The U.S. stock market posted its fifth consecutive weekly loss on data showing a tighter labor market which only added to investor fears of aggressive Fed rate increases this year. The S&P 500 and Dow shed 0.2% each for the week while the Nasdaq fell 1.5%. So far for the year, the S&P 500 has tumbled 12% while the Nasdaq has plummeted into bear market territory, down 22%. In this bleak investment environment, we continue to recommend portfolio allocations toward watersheds like energy, commodities, precious metals, cash and alternative funds. In fact, most of our alternative funds are up for the year, and we have added to all these other asset classes. The reality is the naïve balanced traditional portfolio is getting crushed as bonds are also down in the -10% range: the Ishares Cored Moderate Allocation ETF is -11% year-to-date. Finally, cash is an asset class in this environment and should be an area to add in this flight to safety. Fortunately, due to our re-posturing portfolios in early January, then again on several other occasions, our clients have only had a partial exposure to the capital market losses for the year.
April 29, 2022 Weekly Equity Market Recap. The broad equity market S&P 500 plunged nearly -9% in April, its worst monthly decline since March 2020, and also marked the biggest four-month loss period (-13.3%) to start a calendar year since 1939. While earnings season appears healthy, stocks are being negatively impacted by CEO quarterly comments on inflation rising purchasing costs and supply chain constraints and bottlenecks. The trading week was also derailed by news that GDP shrank 1.4% annual rate in the first quarter.
March 26, 2022 Weekly Equity Market Recap. The U.S. equity markets posted their second weekly gains led by the Nasdaq +2% followed by the S&P 500 posting a 1.8% gain, while the Dow Jones Industrial edged up a mere 0.3%. The energy and materials sectors continue to drive the recovery upside for the benchmark broad market index of the S&P 500. The Federal Reserve is walking a tight rope at keeping recession pressures at bay in the coming year with a rising rate environment, soaring inflation and slower growth. Then, there is the added uncertainty of trade disruptions of war in eastern Europe. Finally, consumer confidence is at an 11-year low, which is disconcerting given the consumer drives 60% of the economic growth. However, there is a chance of a navigating a soft landing as the Fed’s rate actions is conditionally tied to inflation and should actions be taken to increase supply of energy while also resolving logistical supply chain blockages, then economic engine may continue to flow benefits to the stock market. One recent upbeat note was the job report for this week where initial Jobless Claims fell precipitously to a total of 187K.
March 19, 2022 Weekly Equity Market Recap. Notching their biggest weekly gain in 16 month, the S&P had staged a four-day rally that tallied 6% from the close on Monday. The NASDAQ which had taken the brunt of the recent selling rose 10%. Stocks were buoyed on Federal Reserve comments and only 0.25% rate action, along with oil dropping to $94 a barrel after U.S. crude oil topped $130 last week. The Federal Reserve comments also included “the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting." Federal Reserve Board members and Federal Reserve Bank presidents under their individual assessments of projected appropriate monetary policy, which shows that the median projection for the Federal funds rate is 1.9% for the end of 2022.
March 12, 2022 Weekly Equity Market Recap. The Nasdaq dropped 2.2% and S&P 500 fell 1.3% for the week, while the Dow Jones Industrial Average was down only 0.7% . However, the Dow posted a fifth straight weekly loss - its longest losing streak since 2019 on dropping consumer sentiment, inflation hikes and global military tensions. As near-term inflation worries mount, U.S. consumer sentiment is at a 11-year low dropping to 59.7 so far this month, from 62.8 in February. The West Texas intermediate topped $130 a barrel in recent sessions on oil supply shocks and losing 10% of supply; U.S. halted purchases from Russia given the humanitarian calamity in Ukraine. Insofar as we maintained our real asset portfolio hedges in commodities, gold, energy, and treasury inflation-protected securities, we may look to partly reduce in the coming weeks given Russia-Ukraine are in talks to reach peace terms.
March 5, 2022 Weekly Equity Market Recap. For the week, both the S&P 500 & the Dow Jones lost about 1.3%, while the Nasdaq dropped nearly 3%. With the broad market U.S. index marking its third consecutive loss, investors also were exposed to the second correction on the year, where the S&P 500 dropped below 10%. As previously highlighted last week's investment blog, Russia’s unprovoked war with Ukraine is disrupting commodity pricing and trade, while also elevating fear of greater escalation in the region, including the potential nuclear option. Further, with 10% of U.S. oil imports from Russia and WTI prices reaching $115/barrel, exorbitant energy prices continue to spike inflation costs on much of the U.S. economy, ranging from shipping, transportation and a hefty bill at the gas pumps. Fortunately for our client portfolios, we reduced risk and added smart hedges last week – gold, commodities, energy and treasury inflation-protected securities – all of which have been paying off. On Friday, nonfarm Payrolls surged 678k for the month of February, a much stronger figure than the projected 440k by economists, which moved the unemployment rate to 3.8% from 4.0% (the lowest since February 2020). However, even this upbeat economic result was overshadowed by the economic toll of rising inflation and geopolitical tensions. Of course, the greatest market disruptor is undoubtedly war crimes perpetrated by a major military power controlled by "strongarm" Vladimir Putin who is increasingly perceived as an evil madman by the civilized world.
February 26, 2022 Weekly Equity Market Recap. The unprovoked invasion of Ukraine by Russia shook the markets and most of the civilized world. Client portfolio had established hedges for inflation and rising rates, such as additional gold, commodities, treasury inflation-protected securities, energy and financials. However, with geopolitical risk jumping, we reduced portfolio risk a bit & added addition loss hedges. Volatility is now at one of its highest levels for the last decade, and while the jury is still out on whether the pullback will remain a correction or turn into a bear market, equity market is being re-rated not just for inflation and rising rates now, but geopolitical risks. Notwithstanding the humanitarian consequences of war, there are also very disruptive economic consequences that must be considered by investors. Case in point, Russia produces 11% of world oil and 30% of Europe’s natural gas. Russia is also the world’s top wheat exporter. Together with Ukraine, both account for roughly 29% of the global wheat export market. Rising food and energy prices would only be exacerbated with additional price shocks, especially if core agricultural areas in Ukraine are seized by Russian loyalists. Then, our Newsletter's “China” geopolitical event statement clearly is tied to the fragility of Taiwan’s independence and China’s view that Taiwan remains a renegade province of its mainland. It would not be unexpected for hostile repatriation actions to occur in this region, where 94% of semi-conductor chips just happen to be produced in Taiwan. On the positive side, and the reason a good amount of risk remains in portfolios are: 1) The U.S. economy is still growing at a 5-6% pace and escalating world tensions that might disrupt global economies could trigger less aggressive interest rate actions by the Federal Reserve. Further, of the past 20 corrections that have occurred in the S&P 500, including those that have morphed into a bear market, defined as a 20% decline from a recent peak, the S&P 500 has ended higher 70% of the time. Also, stocks do tend to perform well just after they enter correction territory. The average S&P 500 gain for the 12 months following a close into correction territory is 9.3% dating back to 1998, according to Dow Jones Market data; 2) Looking at 29 different geopolitical crises starting with WWII and found that on average, stocks were higher 3-months after a geopolitical shock, and following 66% of events, they were higher after only one month and, 3) If you missed the best 10 trade days in the past 20-years, you would have made half the S&P 500 return (if all stocks); and, 4) If you missed the best 20 trade days, you would have made no money in stocks.
February 19, 2022 Weekly Equity Market Recap. The S&P 500 dropped 5.7 percent for the week, marking its sharpest weekly decline since March 2020, on nonstop news of Russia preparing to invade Ukraine. Then, markets were further rattled with another jump in both oil prices and the Producer Price Index. The market is also concerned about the Fed Reserve interest rate hikes, but from an historical basis starting in the 1950s to today, almost all rate hike cycles have been followed by positive S&P returns, with S&P averaging about 9% in past dozen rate-rising cycles. Indeed, Goldman Sachs updated their S&P 500 target return to 4,900 targets, which implies a 12% gain for U.S. equities from the current values, or 4% for the full year. Finally, we reiterate our own 2022 forecast from back in early January, which appears to be playing out: “choppy” market environment with “downside volatility” and a “minimum -10% intermittent correction” with volatility “more near-term in nature.”
February 12, 2022 Weekly Equity Market Recap. The stock market is continuing to reprice risks – rates, inflation & geopolitical – which elevates volatility. After two weeks of recovery gains, the major U.S. market indices finished down on the week: the S&P 500 shed -1.8% and the Nasdaq lost -2.2%. However, Friday’s announcement by the U.S. that Russia’s invasion of Ukraine was eminent essentially moved the stock market from flat to a loss on the week. Further, the blunt tool used to fight inflation by the Federal Reserve of interest rate hikes doesn’t solve the root of the problem, such as energy supply (more policy) and supply chains shortages, such as semiconductors which are hurting autos, smartphones, etc. The silver lining has been the stabilizing force of healthy corporate earnings, which has kept stocks in a range bound trade range, albeit on the lower end.
February 5, 2022 Weekly Equity Market Recap. The U.S. equity markets notched a second week of gains in another volatile trading week: Nasdaq led the equity indices by ending week up 2.4%, with the S&P 1.6% higher and Dow Jones advancing 1.1%. The forward 12-month P/E ratio for the S&P 500 is now at 19x, down from 21x, but still slightly above the 5-year average of 18.5x. Going forward, we continue to expect a wide trading range that will keep the indices in a sideways pattern until there is better clarity on the economic impact of inflation and rising interest rates; in particular, whether the rising prices will ebb in the coming months prompting less hawkish Federal Reserve. Employment and corporate earnings remain robust and supportive element to the markets. Indeed, with 76% of S&P 500 corporate earnings having beat EPS estimated so far in Q4 and January jobs adding 467,000, the economy is showing a pattern that defies omicron and work shortages.
January 2022 Monthly Stock Market Review: U.S. stocks end January on a two-day rally but still chalk up worst month since March 2020. For the month, the S&P 500 lost -5.3%, the Dow Jones shaved off -3.4% and the Nasdaq dropped -9%. A point of optimism is that corporate profits keep climbing with fourth-quarter profits rising 24% for companies in the S&P 500 compared with a year earlier, according to the market data service FactSet. Hence, we don’t think there is a big risk of recession at this beginning of the year juncture. Further, the S&P 500 had technical support when it hit a -10% intraday loss, before rebounding. Another positive consideration is Goldman Sachs released a note saying corrections are buying opportunities and rarely turn into bear markets. Historically, the prolonged bear markets occur during the recessions , and inverted yield curve precedes the recession by 9-12 months; yet, the yield curve remains upward sloping.
January 27, 2022 Weekly Equity Market Recap. The U.S. equity markets broke a three-week losing streak marked by a wild, topsy-turvy ride for investors where the major indices first sold off sharply on the first three days yet climbed back the last hour to recover part of the losses, then on the last days the markets were up for most of the day and fortunately Friday brought a healthy positive finish. The Dow and S&P ended the week with gains of 1.3% and 0.8%, respectively, with tech heavy Nasdaq finished just above flat at +0.01%. Turning back to Monday of this week, the S&P 500 slid -4% on Monday and into correction territory, below -10% from its Jan 3 record close, before clawing much of the losses back by end of day. We do not believe the volatility is behind us as the market mechanisms are still experiencing sector rotations and price valuation re-setting to a rising rate environment with no more Fed asset repurchases. This week also held the FOMC meeting and Fed Chairman Jerome Powell said “I think there’s quite a bit of room to raise interest rates without threatening the labor market” and the central bank released a paper outlining principles to start “significantly reducing” the bond holdings on its balance sheet without indicating a specific time frame.
January 22, 2022 Weekly Equity Market Recap. The S&P 500 and Nasdaq posted the worst week since pandemic start back in March 2020 with the S&P 500 falling 5.7%, the Dow dropping 4.6% and the Nasdaq plummeting 7.6%. From the high back in early January, the S&P 500 has given back 8.3% while the Nasdaq has lost 11% for the year. The S&P 500 is moving toward correction mode with all major indexes trending down and trading below their 50-day moving averages. Given the diversification of our client portfolios, the range of loss exposure to the S&P 500 has been 0.40%-0.55% for the week. It is more fortunate that client portfolios only had 0.30%-0.40% correlation to the losses experienced by the tech-laden Nasdaq. What also is becoming apparent is the speculative investors (retail day traders) now appear to be leaving the market, and that is a good thing. Recall, in our 2022 Market Outlook we clearly outlined 2022 expectations for this “choppy” market environment with “downside volatility” and a “minimum -10% intermittent correction.” Notably, the S&P 500 has yet to hit the 10% correction so we would anticipate more turbulence ahead, but as our 2022 Market Outlook indicates, “more near-term in nature.” For perspective, in 29 of the past 50 years, the S&P 500 has experienced a correction of at least 10% with a frequency of about once every 19 months, on average, going back to 1928. That means the S&P 500 is about four months overdue for a correction. The point is the S&P 500 is only in a mid-range pullback right now and this current turbulent behavior is a natural cycle mechanism. Accordingly, we do not intend to take client recommended portfolio changes unless we see panic, capitulation behavior that would be associated with directional bear markets. Another way to look at this is not much has changed since the market close on December 31, 2021, with respect to stock fundamentals, the economy, and the Federal Reserve. If anything, from the looks of the yield curve it appears as the markets are discounting (don’t expect) the Fed to be as hawkish with rate hikes, which bodes well for the markets.
January 14, 2022 Weekly Equity Market Recap. Given persistent inflation, ongoing supply chain disruptions and anticipated rate hikes, the equity markets continue to reprice downward: Since Dec. 31, the S&P 500 is off by about 2.1%, while the Nasdaq is down 4.8% and the Dow Jones is down just 1.2%. Omicron-related labor shortages have exacerbated the supply chain disruptions and in face of product shortages and virus sickness spiking, Americans have curbed their shopping with retail sales declining 1.9% in December. The Labor Department reported that consumer inflation jumped at the fastest pace in 40 years last month, a 7% surge. However, while we anticipate inflation to persist in 2022, we also believe the rising costs will moderate toward the second half of 2022.
2021 Yearly Equity Market Recap: The S&P 500 finished up 26.9% at 4,766 in 2021, while the Dow and Nasdaq also notched double digit returns of 18.7% and 21.4%, respectively. The S&P 500 is the broad market stock index composite here in the U.S. and insofar as it has diversified holdings of five hundred stocks, notably there was a sharply disproportionate source of concentrated high-flyer returns where just 1% of these stocks were responsible for about one-third of the index’s overall 2021 gains: Microsoft (MSFT), Apple (APPL), Alphabet (GOOG, GOOGL), Nvidia (NVDA), and Tesla (TSLA). Market volatility was also muted on the year with only a-5% September pullback, but as we go forward in 2022 investors should expect volatility will not only be here to stay but the markets are likely to experience a minimum -10% intermittent correction – but doesn’t mean the market can’t gain on the year. The stock market certainly had a lot going for it with sustained tailwinds of rock bottom interest rates, fiscal/monetary stimulus, strong GDP, and healthy corporate earnings growth. Clients will receive the 2022 Market Forecast & Proposed Investment Strategies next week.
December 24, 2021 Weekly Equity Market Recap. Happy Holidays and We Wish Everyone a Prosperous New Year. With Christmas falling on a Saturday, the U.S. equity markets are closed on Friday, Christmas Eve. On consecutive three days of gains, the S&P 500 hit a record close for the week as Omicron fears waned: The S&P 500 gained +2.3%, the Dow gained rose +1.7% and the Nasdaq climbed +3.2%. This week investors welcomed new facts that though Omicron is much more infectious than other coronavirus variants, it seems to be far less lethal, with largely mild symptoms. Also, Merck’s at-home COVID-19 pill received U.S. approval. On the economic front, weekly jobless claims came in largely unchanged at 205,000 while consumer spending increases +0.6% in November.
December 18, 2021 Weekly Equity Market Recap. In a choppy week of trading, stocks finished down: The Dow Jones closed down -1.7% followed by the S&P 500 -1% and the Nasdaq little changed at -0.1%. The Producer Price index has accelerated to a 9.6% year-over-year pace and is running much hotter than anyone expected. That is the highest reading on record. Moreover, inflation as measured by the CPI, jumped 6.2% from October 2020 to October 2021. In response to rising prices, the Fed announced this week that it will shrink its monthly bond purchases at twice the pace it previously announced, likely ending them altogether in March, while also increasing its forecast that the benchmark short-term rate will increase three times next year, up from just one rate hike.
December 11, 2021 Weekly Equity Market Recap. Following two weeks of volatile trading that left the S&P 500 with back-to-back weekly losses, the S&P 500 led the major U.S. indexes by closing at a record high, advancing about 1%. Meanwhile, the Nasdaq and Dow Jones posted gains of 0.7% and o.6%, respectively. Inflation came in at an almost four-decade record high of 6.8% but the sticker shock was offset by being within the expectation range and consensus view that prices have peaked. Other notables for the week was the Fed reserve would take actions (tapering) to help alleviate inflation and investor concerns over omicron eased amid positive signs that the variant may be less dangerous than the Delta variant. A couple pharmaceutical companies, Pfizer and GlaxoSmithKline, indicated this week that their vaccine and antibody treatment, respectively, appear to have been effective against Omicron in early-stage studies.
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