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October 1, 2022

Weekly Market Commentary September 26th to September 30th 2022


Following a week where the Federal Open Market Committee hiked short-term interest rates by 75 bps for an unprecedented third meeting in a row, economic data releases were voluminous and choppy. All signs continue to point to full speed ahead for the Fed and their efforts to rein in stubbornly high inflation. Let’s go chronologically.

Starting on Tuesday, Durable Goods Orders for August shrank less than expected, coming in at -0.2% while Capital Goods Orders were a strong win, hitting +1.3% when consensus called for +0.2%. New Home Sales also surprised to the upside, coming in at 685k, up over 28% from the prior month’s revision of 532k. We also received the first of two consumer sentiment reports with the Confidence Board’s Consumer Confidence Index which beat expectations at 108. Looking deeper into that result shows consumers have appreciated lower gas prices and strong employment numbers in the face of volatile markets and high food prices.

Wednesday started with the opposite sentiment in housing as Pending Home Sales disappointed, coming in at -2.0% when consensus called for -1.3%. While disappointing, this is more in-line with the recent negative trend in housing due to skyrocketing mortgage rates and represents a third straight monthly drop.

On Thursday, Initial Jobless Claims, one of the more telling signs of economic direction, was a surprise to the upside. 193,000 new benefit applicants was the lowest in five months and came in well under the predicted 215,000, clearly outlining the strength of the employment situation. If this number and the unemployment rate stay low, look for the Fed to be continually emboldened in its rate increases. The Q2 GDP figure was also confirmed at -0.6%.

Friday brought us more dismal August inflation and sentiment releases. Increases in Personal Income and Personal Spending both pushed the Core Personal Consumption Expenditure (PCE) Deflator year-over-year to 4.9% when 4.8% was expected. The worst news was that this was up from July’s revised 4.7% showing inflation is still prevalent and giving the Fed even more fuel to push rates higher at their final two meetings this year. Lastly, the U Michigan Consumer Sentiment Index continued its recent dismal trend of hovering in the 50’s and flying in the face of the Conference Board’s release on Tuesday. It’s interesting how two different organizations polling different groups of consumers can come up with such varied results.

Not surprisingly, the decidedly negative results from the week along with the aggressive Fed resulted in the markets dropping across the board. The S&P 500 was down 2.9%, the NASDAQ Composite was off by 2.7%, and the Dow Jones Industrial Average also dropped 2.9%. The yield on the bellwether 10-Year U.S. Treasury continued its climb and closed the week at 3.80%, while the 2-Year followed suit and finished at 4.24%. The yield curve is still inverted with the 30-Year U.S. Treasury hovering at 3.77%.

Next week, look for S&P and ISM Manufacturing and Services indices and the all-important monthly employment report for September.

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