September 23, 2022

Weekly Market Commentary September 19th to September 23rd 2022

The Federal Open Market Committee announced a 0.75% hike in short-term interest rates as was widely anticipated. The unanimous decision raises the Fed Funds Rate to a range of 3.00 to 3.25%. Median projections provided by the Fed call for a 4.4% target by calendar year end, putting additional upward pressure on U.S. Treasury rates.

Housing Starts in August were higher by 12% to 1.575 million units following a downward revision in the July reading. The report exceeded consensus expectations and falls roughly in line with the year ago level of 1.576 million. Multi-family home starts are significantly higher than a year ago, more than offsetting the dramatic pullback in single family starts.

Building Permits, however, are lower in August than a year ago by 14% to 1.517 million. Builders, who have suffered from supply chain disruptions and labor shortages, are now being faced with falling demand driven by a rise in financing costs to the highest level in 14 years. Homebuilder sentiment, as measured by the NAHB Home Builder Optimism Survey, declined further in the month.

Existing Home Sales in the U.S. reported for August were 4.8 million units on a year-on-year basis. The reading is marginally below the prior month reading and a tick above consensus estimates. Sales are off by 20% from the 6.0 million pace of August 2021. Zillow reports that home values are declining on a month-over-month basis for the first time in a decade.

The S&P 500 sold off following the Fed rate announcement and closed the week down by 4.6%. The NASDAQ Composite was off by a more painful 5.3%. Rising volatility pushed the Dow Jones Industrial Average to its lowest level of the year on Friday, back below 30,000, closing the week lower by 4.0%. The yield on the bellwether 10-Year U.S. Treasury rose further, closing the week at 3.66%, after hitting an intra-trading session high of 3.80%. The 2-Year, driven by expectations of incremental short-term rate hikes by the Fed, closed up at 4.18%.

Notable economic releases next week include Durable Goods Orders, New Home Sales, an updated estimate of Q2 GDP, Personal Income and Outlays and Consumer Sentiment.

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