July 2, 2022

Weekly Market Commentary June 27th to July 1st 2022

It was a busy week for key economic data releases. Investors focused most closely on Personal Consumption Expenditures (PCE) and the third reading of Q1 GDP, which both came out on Thursday morning.

The Personal Consumption Expenditures Price Index, which the fed uses as its key inflation metric, rose 0.6% from last month, slightly better than an expected 0.9% increase. Although the PCE is the Fed’s preferred measure of inflation, Chairman Powell stated that they will need to see improvement in both PCE and the Consumer Price Index (CPI.) While the 0.6% increase might seem less alarming than the CPI increase last week, it’s important to note that the CPI weights gasoline and rent more heavily than the PCE.

Q1 GDP had its third and final revision, finishing at -1.6%. This reflects a much worse personal consumption number than the expected 3.1%, now revised to 1.8%. The adjustment, along with falling consensus estimates for Q2 GDP, have added to bearish sentiment.

Pending Home Sales increased higher than expectations, with a 0.7% increase for May, 0.3% higher than the surveyed number. This is likely a one-off increase in a general downtrend due to higher rates, as sales are down 12% from where they were this time last year.

The Chicago PMI, which measures performance in the manufacturing and non-manufacturing sectors in the Chicago region, was reported at 56.0, down from last month’s 60.3. This decrease was worse than surveyed expectations at 58 points, suggesting a slowdown in economic activity.

Orders placed with U.S. factories increased more than surveyed expectations, indicating that business investment is still robust in the face of rising interest rates and growing economic uncertainty. Analysts surveyed expected a 0.1% increase this month but orders for durable goods rose 0.7% following last month’s revised 0.4% increase.

Consumer confidence dropped to 98.7 from a revised 103.2 the previous month. The surveyed number for June was 100. This index is now the lowest it has been since February 2021.

Despite a late day rally in the first trading session of the new quarter, U.S. equities ended down for the week, with the S&P 500 off by -2.2% to 3,825. The NASDAQ Composite continued its slide, finishing the week lower by -4.1%. The yield on the 10-Year U.S. Treasury was lower by 24 basis points, ending the final trading session at 2.89%.

There is lots to look forward to next week as the FOMC Minutes are released as well as a key report on Unemployment.

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