Weekly Commentary (8/8/22) – Markets Mostly Higher as Earnings & Jobs Beat Expectations

August 8, 2022

Markets were mostly higher last week as earnings were generally better than expected and labor markets showed strong gains in July.

For the week, the DJIA lost 0.11% while the S&P 500 moved ahead by 0.39%. The tech-heavy Nasdaq had a good week and advanced 2.18%. International markets finished mixed. For the week, the MSCI EAFE Index (developed countries) finished lower by 0.65% while emerging market equities (MSCI EM) tacked-on a gain of 0.97%. Small company stocks, represented by the Russell 2000, were strong and finished the week nicely higher by 1.96%. Fixed income, represented by the Bloomberg Aggregate, declined 1.04% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 2.83% (up ~ 16 bps from the previous week’s closing yield of ~2.67%). Gold prices closed at $1,772.90/oz – up 0.57% as the U.S. dollar rose 0.63% on the week. Oil prices retreated to close at $89.01 per barrel, down 9.74% on the week.

Last week saw a number of important economic releases. The ISM Manufacturing Index fell to 52.8% in July vs. 53.0% in May, yet the results point to a still-growing manufacturing economy. Closing out the week was July’s payrolls report. Non-farm payrolls rose 528k, more than double expectations, while the unemployment rate fell to the lowest level since 1969. Average hourly earnings growth picked up 5.2% year-on-year compared to expectations of a 4.9% gain. The strong employment report will put pressure on the Fed to continue raising rates to slow down the economy and inflation. The next Fed meeting is September when they are expected to raise rates 50 bp followed by two 25 bp hikes before year-end for a terminal fed funds rate of 3.50%. July’s strong jobs number has some analysts pointing to a possible 75 bp rate hike in September.

The week ahead holds a few events that will provide investors a snapshot of how the economy and sentiment are holding up in August. Releases include: NFIB Small Business Index on Tuesday, CPI on Wednesday, PPI on Thursday, and University of Michigan Consumer Sentiment Survey on Friday. 2Q22 earnings season will be winding down this week and next.

We are likely not out of the woods yet, but the economic backdrop seems to be better than feared. We urge investment to stick close to long-term asset allocation targets with a slight defensive bias.

Enjoy the summer!

“Winners never quit and quitters never win.” – Vince Lombardi