Weekly Market Commentary September 5th to September 9th 2022
The S&P Global US Services PMI and ISM Services Index led off the week giving us information on the service sectors. The Services PMI came in at a contractionary 43.7, below estimates and lower than last month, showing the sharpest decline in activity since May 2020. The decrease in output stemmed from weak domestic and foreign demand, and greater consumer hesitancy in placing new orders. Conversely, the ISM Services Index gave an August reading of 56.9, beating estimates and topping prior month’s reading, indicating expansion. The ISM includes a broader sampling of industries than the S&P Global, but clearly the conflicting data was difficult to extract meaningful conclusions from.
Initial Jobless Claims continue to fall after a reading of 222,000 new claims from the prior week, well below the 235,000 estimate, suggesting demand for workers remains healthy despite an uncertain economic outlook. However, job growth may slow as the Federal Reserve continues on an aggressive path of interest-rate hikes to tame decades-high inflation.
MBA Mortgage applications fell 0.80% on the month after a 3.70% decline in the prior month. Purchases and refinancings were down 0.7% and 1.1%, respectively, as the average 30-year fixed rate sits at an elevated 5.94%. This marks the fourth consecutive week of declining applications.
The U.S. trade deficit shrank by $9 billion in July to -$70.6 billion, marking a fourth straight monthly decline. The improving deficit reflects a decline in the value of imports and a slight uptick in exports, driven in part by a strengthening US dollar. This strength should provide some lift for Q3 economic growth and could possibly put an end to the claims that we are currently in a recession. One takeaway worth noting was consumer goods plummeting by 9.8%, the most in 20 years. This drop is indicative of U.S. retailers dialing back orders with overseas suppliers as they focus on getting inventories more in line with sales.
The equity markets were strong in a shortened trading week with Tuesday being the only red day. The S&P 500 Index finished 3.65% higher at 4,067. The NASDAQ performed the best rallying to 12,112, a 4.14% gain on the week. Lastly, The Dow Jones Industrial Average finished 2.66% higher at 32,152. Treasury yields moved higher on the week with the 10-Year closing at 3.32% and the 2-Year at 3.56%, a spread of -24bps.
Next week’s economic data to watch for includes the Consumer Price Index and Retail Sales.