October 21, 2022

Weekly Market Commentary October 17th to October 21st 2022

The Empire State regional manufacturing survey registered a -9.1 reading, indicating slowing factory activity. This was caused by poor sentiment for future business conditions and was worse than the -4.0 reading that was projected. The Philadelphia Fed’s Business Outlook survey came in at a similar -8.7 reading. A separate survey of national Industrial Production showed solid 0.4% growth (vs. 0.1% expected), led by upticks in construction and mining. Capacity Utilization rose to 80.3%, a post-pandemic high and better than the 80% estimate by economists. This shows that productivity is moving higher as the economic cycle matures.

Weekly Jobless Claims were lower than expected at 214,000. They temporarily rose in the past few weeks, largely reflecting dislocation from Hurricane Ian in Florida. 200,000-250,000 claims/week has generally been seen as a healthy level, indicating labor market growth without overheating.

Housing Starts of 1.44 million annualized missed expectations and dropped 9% from last month. Surprisingly, drops in multi-family unit starts caused the shortfall. This comes as rents surge, benefitting from the restrictive buying environment. Building Permits rose in a more encouraging sign, coming in at 1.56 million annualized vs. 1.53 million expected. Existing Home Sales of 4.71 million annualized came in close to expectations but down 1.5% from a month ago.

Elsewhere in housing data, the NAHB Housing Market Index was a massive disappointment, hitting its lowest point in a decade when excluding Spring 2020. The specter of higher rates and lower demand (especially for more expensive homes) weighed on the survey. As 30-year mortgage rates soar past 7%, Mortgage Applications fell to their lowest level in 25 years, declining another 4.5% from last week.

Stocks showed continued volatility this week but ended well in the green. The S&P 500 was up 4.8% to 3,753, while the Dow Jones was up roughly the same percentage to end the week at 31,083. The NASDAQ gained over 5% to end the week at 10,860 as technology stocks powered gains.

The yield on the 10-Year U.S. Treasury soared 21 basis points to 4.22%. Meanwhile, the 2-Year U.S. Treasury dropped 3 basis points from 4.51% to 4.48%, reflecting expectations for a slower pace of Federal Reserve interest rate hikes. The rise in longer-term yields is due to a variety factors, not least of which is the Fed ceasing purchases of U.S. Treasuries, pushing down demand and pushing up yields.

Next week is chock full of economic data releases including the PCE inflation gauge, New Home Sales, Consumer Confidence, and S&P’s Manufacturing & Service PMIs.

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