Weekly Commentary (9/12/22) – Markets Bounce Higher on Hopes of a Soft Landing

September 12, 2022

US Markets were sharply higher last week as investors’ fears of a recession slowing the economy, in the near term, abated. Reversing course from its reaction to the Fed’s reaffirmation of its resolve to fight inflation, investors were willing to pay higher prices for stocks in virtually all asset classes. This was despite bond yields still rising slightly.

For the week, the DJIA returned 2.72% and the S&P 500 was up 3.68%. The tech-heavy Nasdaq bounced back and climbed 4.15%. International markets were mixed and more muted. For the week, the MSCI EAFE Index (developed countries) added 0.89% while emerging market equities (MSCI EM) were off 0.13%. Small company stocks, represented by the Russell 2000, were strong and finished the week up 4.07%. Fixed income, represented by the Bloomberg Aggregate, declined 0.70% for the week as yields moved slightly higher. The 10 YR US Treasury closed at a yield of 3.33% (up ~ 13 bps from the previous week’s closing yield of ~3.20%). Gold prices closed at $1,713/oz. – up just slightly from $1,710 on the week. Oil prices were stable and closed only down $0.08 at $86.79 per barrel.

Last week’s economic data included the ISM Services PMI which unexpectedly edged higher to 56.9 in August of 2022 from 56.7 in July, beating market forecasts of 55.1, and pointing to the strongest growth in services activity in four months. There is evidence of some supply chain, logistics and cost improvements; however, material shortages remain a challenge. Consumer Credit Consumer credit in the United States increased by USD 23.81 billion in July of 2022, down from a downwardly revised USD 39.1 billion gain in the previous month and well below market expectations of a USD 33 billion rise. This may be an indicator of cautious consumers.

This week some key inflation metrics will be released: Monday – Consumer Inflation Expectations, Tuesday- CPI and Core Inflation numbers for August, Wednesday – Producer Price Index (PPI) data for August, Thursday- Retail Sales data. With so much attention focused on inflation rates and the consumers’ spending rates and how the Fed will/might execute its mandate to curb inflation, this data could move markets as investors typically have a dramatic initial reaction to any surprises. Even if there are no surprises, bullish investors will often take this as a very positive cue, in this environment.

The market tested a significant “technical level” of about 3,900 on the S&P 500 Index the week before last and bounced off it to make gains for the past week. If stock prices break down through this level, technical analysts would generally predict that the market could move even lower to test the June 14 lows. Regardless of whether this near-term movement takes place, we are sanguine on the long-term prospects for stocks and remind investors to avoid being distracted by near-term gyrations as we all juggle the data deluge and an unprecedented economic environment – of course, it always feels that way.

“You may not control all the events that happen to you, but you can decide not to be reduced by them.” – Maya Angelou