Weekly Commentary (9/6/22) – Markets Lower on Fed Resolve

September 6, 2022

Markets were lower across the board last week as investors reacted to hawkish comments from Fed Chair Powell at the Jackson Hole conference. The Fed reiterated their intention to tame inflation while being willing to sacrifice some softness in the economy to do so.

For the week, the DJIA lost 2.85% while the S&P 500 gave back 3.23%. The tech-heavy Nasdaq had a rough week as it declined 4.18%. International markets finished lower as well. For the week, the MSCI EAFE Index (developed countries) finished lower by 3.00% while emerging market equities (MSCI EM) dropped 3.41%. Small company stocks, represented by the Russell 2000, were weak and finished the week down 4.70%. Fixed income, represented by the Bloomberg Aggregate, declined 1.02% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 3.20% (up ~ 16 bps from the previous week’s closing yield of ~3.04%). Gold prices closed at $1,709.80/oz – down 1.51% as the U.S. dollar rose 0.81% on the week. Oil prices retreated to close at $86.87 per barrel, down 6.65% on the week.

Last week saw several important economic releases. The US Manufacturing PMI came in at 51.5 … down 0.7 points from July. Unemployment nudged up to 3.7% while the August Employment Report showed 315k jobs added for the month – slightly better than the expected 295k. Average hourly earnings for August rose 5.2% (unchanged versus July) while the report also showed downward revisions in the number of jobs created in June and July to 107k. The big news of the week, highlighted above, was from the Fed’s Jackson Hole conference. The Fed remained resolute in attacking inflation. The next Fed meeting is scheduled for September 20 – 21 when they are expected to raise rates 75 bp (up from pervious estimates of 50 bp) followed by two 25 bp hikes before year-end for a terminal fed funds rate of 3.50% – 4.0%. Markets were hoping for more dovish comments from the Fed.

The week ahead holds a few events that will provide investors a snapshot of how the economy and sentiment are holding up in early September. Releases include: August Services PMI, ISM Non-Manufacturing Index, Consumer Credit and an OPEC+ and ECB meeting.

We are likely not out of the woods yet and we look for markets to remain range-bound. September has not been overly kind to investors over the years with the median market return of -0.1%. When the S&P 500 is down YTD (like 2022) September has averaged a loss of 3.4%. But we all know that 2022 so far has been anything but normal. We urge investors to stick close to long-term asset allocation targets with a slight defensive bias.

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” – Thomas A. Edison