ND&S Weekly Commentary 9.19.22 – Fall, Leaves, Fall

September 19, 2022

Halloween came early as investors were spooked by higher-than-expected inflation, signs of slowing economic growth and the likelihood of the Federal Reserve hiking interest rates more than expected.

On Tuesday, the Consumer Price Index (CPI) release showed that the key drivers of inflation are not slowing down. The market reacted by sending U.S. stocks to their steepest one-day decline since the beginning of the pandemic.

For the week, the S&P500 slid 4.7%, the DJIA fell 4.1%, and the tech-heavy NASDAQ took back 5.5%. International equities were also weak with developed and emerging markets down 2.7% and 2.6%, respectively. The price of gold dropped to $1,683/oz. – down 2.6% for the week.

Interest rates advanced with the yield on the 10yr U.S. Treasury climbing for the seventh straight week to close at 3.45% … up from 3.32% the previous week. The yield curve remains inverted with the 2yr Treasury Note rising to 3.87% which is its highest level since 2007.

The August CPI report released last week came in at 8.2% y/y, a slight decline from July (8.5%) but higher than expected. When food and gasoline prices are excluded, core inflation rose 6.3%, much higher than the expected 5.9%. There was good news about U.S. Retail Sales rising in August by 0.3% following July’s 0.4% decline.

We expect the Federal Reserve to stick to their guns and increase the Federal Funds rate by 0.75% at this week’s meeting. The CEO of the shipping giant FedEx warned of a gloomy outlook for the global economy and expects that there will be a global recession. FedEx announced that it was pulling its full-year earnings guidance due to the “continued volatile operating environment.”

Despite more compelling stock valuations and a resilient consumer, we recommend that investors reassess their investment objectives, risk tolerance and fine-tune a diversified portfolio accordingly.

“There is a harmony in autumn, and a luster in its sky, which through the summer is not heard nor seen, as if it could not be, as if it had not been!” – Percy Bysshe Shelley