Weekly Commentary 8/22/2022 – A Cooling of the Summer Rally

August 22, 2022

Wall Street ended its 4th straight week of market advances as investors were nervous by possible signs of peaking consumer demand and a less than accommodative Federal Reserve.

The S&P 500 lost 1.2% this past week, the Nasdaq slid 2.6% and the Dow Jones Industrial Average inched lower by .05%. International Equities also finished in the red with developed markets (EAFE) and emerging markets (EM) down 2.2% and 1.5%, respectively. The yield on the 10-year U.S. Treasury rose to 2.98%, up from 2.85% from the previous week.

The 2nd Q earnings season is almost over and nearly 63% of the S&P companies beating revenue estimates and roughly 76% exceeding estimated earnings. Revenue growth year over year is coming in at 14.1% and earnings are higher by 8.2%.

On Wednesday, the Federal Reserve released minutes from their latest meeting showed that members felt that interest rates would need to continue being raised to bring inflation in line with targets. Investors are hoping for less aggressive rate hikes in the fall.

The price of Oil fell $0.80 with U.S. Crude ended the week at $90.77 per barrel. That is still way down from the high of $123 at the beginning of the war in Ukraine. Housing showed signs of weakening as housing starts fell 9.6% to the lowest level since August 2000, due to increased construction costs and higher mortgage rates. The July job reports came in much stronger than expected and retail sales were basically flat. However, other weak economic indicators were reported, and the inverted yield curve is rearing its recessionary head.

We would not be surprised by a market pull-back given our summer rally. With the uncertainty of inflation, interest rates, and geopolitical tensions, market volatility will continue. We recommend staying well-diversified and fine-tuning accordingly.

All eyes will be on the Fed’s annual Jackson Hole meeting, and Fed Chair, Jerome Powell, speaking on Friday. There will be a slew of economic reports on housing, durable goods orders, August manufacturing and service PMIs and consumer sentiment.

“Roll out those lazy, hazy, crazy days of summer.”- Sam Cooke