July 15, 2022

Weekly Market Commentary July 11th to July 15th 2022

It was an important week for economic data with the headliner being the Consumer Price Index (CPI), up 1.3% from last month, and 9.1% year-over-year versus estimates of 8.8%. The Core CPI was up 0.7% during the month, for an annual increase of 5.9% versus expectations of 5.7%. The 40-year high headline inflation number was mostly due to record high prices for gas and oil in June. The core numbers were boosted by increases in rent and new and used vehicle prices. Higher-than-expected levels of inflation raise concerns that the Fed may raise rates more sharply than originally anticipated.

Another important indicator that came out this week was the Producer Price Index (PPI). The year-over-year PPI increased 11.3% versus estimates of 10.7% while the Core PPI increased 8.2%, in-line with expectations. The largest contributors to the increase in PPI were energy and commodities, which have fallen off their highs thus far in July.

Retail Sales increased 1.0% in June versus expectations of 0.9%. The Control Group (which factors directly into GDP) increased 0.8% versus expectations of 0.3%. Real Retail sales (factoring in inflation) however, decreased in June meaning that inflation was the key driver behind the beat.

Industrial production decreased 0.2% against expectations of a 0.1% increase. The decrease was attributed to excess inventories and a weak economic outlook. University of Michigan sentiment came in at 51.1 versus estimates of 50. Although, sentiment was better it is still near all-time lows as respondents attributed their negative views to high levels of inflation.

The NFIB Small Business Optimism reading missed estimates at 89.5 versus expectations of 92.7. This was the biggest drop since 2020 and was attributed to inflation and labor challenges. Expectations for business conditions in the next six months were the worst in the survey’s 48-year history.

Despite a strong rally in the final trading session on Friday, the S&P 500 closed the week lower by 0.9% to 3,863. The NASDAQ Composite took a similar trajectory, closing -1.6% for the week. The yield on the 10-year U.S. Treasury closed the week at 2.92%, 21 basis points lower than the 2-Year Treasury, indicative of an inverted yield curve.

Key economic data releases next week include Housing Starts, Building Permits, Existing Home Sales, and Leading Economic Indicators.

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