What I’m Watching This Week – 26 September 2022

The Markets (as of market close September 23, 2022)

Investors endured their second harrowing week in a row as the Federal Reserve continued to raise interest rates aggressively to combat inflation. New signs of slowing global growth and Russia’s threats to escalate the war in Ukraine provided more reasons for selloffs in the stock and bond markets by nervous investors. The Nasdaq, the Russell 2000, and the S&P 500 all sunk deeper into bear territory, and the Dow dropped to its lowest level of 2022. In a cruel twist of fate, bonds are not behaving like the port in the storm that investors tend to expect. Treasury prices have fallen and yields have risen to heights not seen in more than a decade. The dollar is exhibiting unusual strength against many foreign currencies, including the pound, the euro and the yen. Oil prices fell to their lowest levels since January.

Stocks pushed higher to end last Monday, rallying from what had been the worst week of performance since June. Each of the benchmark indexes listed here posted moderate to solid gains, led by the Russell 2000 and the Nasdaq, which gained 0.8%. A spike in megacaps helped drive the rebound. The S&P 500 rose 0.7% and the Dow climbed 0.6%. The Global Dow inched 0.3% higher. Traders tried to gauge the impact of what is expected to be another 75-basis point rate hike from the Federal Reserve. Ten-year Treasury yields rose to 3.49%, while two-year Treasury yields, which are more sensitive to near-term interest-rate movements, hit their highest rate since 2007 after climbing to 3.94%. Crude oil prices moved marginally higher, closing at $85.53 per barrel. The dollar edged lower, while gold prices advanced.

Wall Street saw stocks tumble lower last Tuesday, while Treasury yields jumped higher as investors braced for the Federal Reserve’s expected interest-rate boost. The Russell 2000 (-1.4%) fell the furthest among the benchmark indexes listed here, followed by the S&P 500 (-1.1%), the Dow and the Global Dow (-1.0%), and the Nasdaq (-0.9%). Ten-year Treasury yields climbed 8.1 basis points to 3.57%, while the yield on the two-year Note rose to 3.96%. Crude oil prices fell 1.8%, sliding to $84.19 per barrel. The dollar advanced, while gold prices dipped lower.

Last Wednesday, investors reacted to the 75-basis point interest-rate hike by moving away from stocks. Each of the benchmark indexes listed here closed the session in the red, with only the Russell 2000 and the Global Dow falling less than 1.7% (-1.4% and -1.5%, respectively). The Nasdaq dropped 1.8%, while the S&P 500 and the Dow fell 1.7%. Bond prices climbed higher, pulling yields lower. Ten-year Treasury yields decreased 6.1 basis points to end the day at 3.51%. Crude oil prices declined for the second consecutive day, falling to $83.09 per barrel. The dollar rose for the second day in a row, while gold prices advanced, reversing the previous day’s fall.

Wall Street tumbled lower for the third consecutive session last Thursday. Each of the benchmark indexes listed here lost value, with the Russell 2000 falling 2.3% and the Nasdaq dropping 1.4%. The S&P 500 and the Global Dow slid 0.8%, and the Dow slipped 0.4%. Traders continued to react to the Federal Reserve’s aggressive measures to rein in inflation by selling stocks, particularly growth shares, including technology stocks. Ten-year Treasury yields added nearly 20 basis points, reaching 3.70%. Crude oil prices and the dollar inched higher. Gold prices rose $4.00, hitting $1,679.70 per ounce.

On Friday, stock market investors continued their tantrum for a fourth straight day after a report showed that economic activity in Europe declined sharply in September. The Global Dow took the biggest hit, skidding 2.6%, followed closely by the Russell 2000 (-2.5%). The Nasdaq dropped 1.8% and S&P 500 fell 1.7%. The Dow was down 1.6%, ending the day at its lowest level of 2022. Energy stocks took a particularly hard beating, as crude oil plunged 5% to land below $80 per barrel. Gold prices fell and the dollar strengthened. Ten-yield Treasury yields were little changed.

Stock Market Indexes

Market/Index2021 ClosePrior WeekAs of 9/23Weekly ChangeYTD Change
DJIA36,338.3030,822.4229,590.41-4.00%-18.57%
Nasdaq15,644.9711,448.4010,867.93-5.07%-30.53%
S&P 5004,766.183,873.333,693.23-4.65%-22.51%
Russell 20002,245.311,798.191,679.59-6.60%-25.20%
Global Dow4,137.633,450.243,267.25-5.30%-21.04%
Fed. Funds target rate0.00%-0.25%2.25%-2.50%3.00%-3.25%75 bps300 bps
10-year Treasuries1.51%3.44%3.69%25 bps218 bps
US Dollar-DXY95.64109.70113.193.18%18.35%
Crude Oil-CL=F$75.44$85.25$79.43-6.83%5.29%
Gold-GC=F$1,830.30$1,683.70$1,651.70-1.90%-9.76%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • As expected, the Federal Open Market Committee raised the target range for the federal funds rate 75 basis points to 3.00%-3.25%, and anticipates that ongoing increases will be appropriate. This is the highest level for the federal funds rate since 2008. According to Fed Chair Jerome Powell, the Committee is committed to bringing inflation back down to their 2.0% goal. In continuing to push interest rates higher, the FOMC suggested that the economy is resilient, highlighting modest growth in spending and production, although August data showed that inflation continued to rise, albeit at a slower pace. According to Federal Reserve projections, officials see inflation rising to 5.4% this year. The federal funds rate is projected to increase to 4.4% by the end of this year and 4.6% by the close of 2023, which the Fed expects will bring inflation down to 2.8% by the end of next year.
  • The number of housing starts increased by 12.2% in August over July’s total. However, building permits and housing completions slid lower, 10.0% and 5.4%, respectively. Building permits for single-family homes dipped 3.5% last month, while housing completions (0.4%) and housing starts (3.4%) increased.
  • Sales of existing homes slid lower for the seventh consecutive month in August after declining 0.4%. Existing home sales are down 19.9% since August 2021. While mortgage rates have risen, existing home prices have not decreased at the same pace and remain somewhat elevated. Total housing inventory sat at a 3.2-month supply in August, unchanged from July. The median existing-home price for all housing types was $389,500 in August, higher than the August 2021 price of $361,500 but lower than the July price of $399,200. Sales of existing single-family homes also declined in August, down 0.9% from July and 19.2% below the August 2021 pace. The median existing single-family home price in August was $396,300, down from the July price of $405,800. The August decline was the second consecutive monthly decrease in the median sales price for existing single-family homes.
  • The national average retail price for regular gasoline was $3.654 per gallon on September 19, $0.036 per gallon below the prior week’s price but $0.470 higher than a year ago. Also as of September 19, the East Coast price decreased $0.070 to $3.457 per gallon; the Gulf Coast price rose $0.031 to $3.157 per gallon; the Midwest price dropped $0.053 to $3.518 per gallon; the West Coast price increased $0.020 to $4.845 per gallon; and the Rocky Mountain price fell $0.012 to $3.877 per gallon. Residential heating oil prices averaged $3.173 per gallon on September 16, about $0.406 per gallon less than the prior week’s price.
  • For the week ended September 17, there were 213,000 new claims for unemployment insurance, an increase of 5,000 from the previous week’s level, which was revised down by 5,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended September 10 was 1.0%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended September 10 was 1,379,000, a decrease of 22,000 from the previous week’s level, which was revised down by 2,000. States and territories with the highest insured unemployment rates for the week ended September 3 were New Jersey (2.0%), California (1.7%), New York (1.6%), Puerto Rico (1.6%), Rhode Island (1.4%), Massachusetts (1.3%), Connecticut (1.2%), Nevada (1.2%), Pennsylvania (1.1%), Alaska (1.1%), and Oregon (1.1%). The largest increases in initial claims for the week ended September 10 were in Indiana (+738), Arkansas (+217), Iowa (+149), North Dakota (+28), and Maine (+15), and while the largest decreases were in California (-3,064), New York (-2,905), Texas (-2,493), Oklahoma (-1,729), and Pennsylvania (-1,355).

Eye on the Week Ahead

There are plenty of important economic reports out during the last week of September. The final estimate of gross domestic product is out this week. It is not expected to change much from the prior estimate, which showed the economy retracted by 0.6% in the second quarter. The report on personal income and outlays for August is also available this week. The personal consumption expenditures price index, a key inflation indicator favored by the Federal Reserve, is included in this report.

What I’m Watching This Week – 19 September 2022

The Markets (as of market close September 16, 2022)

Inflation is still rising, albeit at a slower pace, according to the latest data out last week. This will likely support further interest-rate increases from the Federal Reserve and worries of a resulting economic recession. Stocks retreated, culminating in the worst week since June. The Nasdaq suffered through its worst week since January after falling nearly 5.5%. The S&P 500, the Russell 2000, and the Dow lost at least 4.0%. The Global Dow also ended last week well in the red. Crude oil prices declined for a third consecutive week, while gold prices continued to slide, despite a bump higher at the end of the week. The dollar inched higher. Year to date, while all of the benchmark indexes listed here are well below their 2021 closing values, the Nasdaq has fallen nearly 27.0%.

Wall Street rallied last Monday ahead of the latest Consumer Price Index report that investors hope would show that inflation is peaking. The S&P 500 rose for the fourth consecutive session after gaining 1.1%, marking its longest winning streak in two months. The Nasdaq climbed 1.3%, the Russell 2000 added 1.2%, the Dow advanced 0.7%, and the Global Dow jumped 1.4%. The dollar slid lower, while 10-year Treasury yields increased 4.1 basis points to close the day at 3.61%. Crude oil prices rose $1.12 to reach $87.91 per barrel.

Stocks reacted negatively after last Tuesday’s hotter-than-expected CPI report showed that inflation probably hasn’t peaked quite yet. Each of the benchmark indexes listed here ended the trading session in the red, wiping out practically all of the gains attained over the prior four sessions. The Nasdaq dropped 5.2%, followed by the S&P 500 (-4.3%), the Dow and the Russell 2000 (-3.9%), and the Global Dow (-2.9%). Ten-year Treasury yields climbed to 3.42%. The dollar jumped 1.4%, while gold prices slid 1.6%. Crude oil prices dipped to $87.50 per barrel.

Dip buyers seized the opportunity to snatch some undervalued stocks last Wednesday, nudging Wall Street slightly higher following the biggest single-day rout in two years. The Nasdaq gained 0.7%, the Russell 2000 added 0.4%, the S&P 500 rose 0.3%, and the Dow inched up 0.1%. The Global Dow fell 0.2%. Ten-year Treasury yields slipped to 3.41%. The dollar and gold prices fell. Crude oil prices edged up by nearly $1.50, closing at roughly $88.80 per barrel.

Stocks closed lower last Thursday, with each of the benchmark indexes listed here losing value. While stock values declined, bond yields rose. The yield on 10-year Treasuries closed at 3.45%, while the two-year Treasury yield hit 3.87%, the highest rate since October 2007. The Nasdaq dropped 1.4%, the S&P 500 slid 1.1%, the Global Dow fell 0.8%, the Russell 2000 dipped 0.7%, and the Dow lost 0.6%. Crude oil prices fell nearly 3.7%, dropping to $85.18 per barrel. The dollar inched higher, while gold prices declined to $1,673.40 per ounce, the lowest price in over a year.

Equities fell last Friday after a major delivery service company announced weak quarterly results. The Russell 2000 (-1.5%) and the Global Dow (-1.1%) dipped the furthest, followed by the Nasdaq (-0.9%), the S&P 500 (-0.7%), and the Dow (-0.5%). The yield on 10-year Treasuries slipped 1.0 basis point to 3.44%. Crude oil prices rose by $0.15 to $85.25, the dollar was flat, while gold prices jumped $6.40 to $1,683.70 per ounce.

Stock Market Indexes

Market/Index2021 ClosePrior WeekAs of 9/16Weekly ChangeYTD Change
DJIA36,338.3032,151.7130,822.42-4.13%-15.18%
Nasdaq15,644.9712,112.3111,448.40-5.48%-26.82%
S&P 5004,766.184,067.363,873.33-4.77%-18.73%
Russell 20002,245.311,882.851,798.19-4.50%-19.91%
Global Dow4,137.633,564.663,450.24-3.21%-16.61%
Fed. Funds target rate0.00%-0.25%2.25%-2.50%2.25%-2.50%75 bps225 bps
10-year Treasuries1.51%3.32%3.44%12 bps193 bps
US Dollar-DXY95.64108.98109.700.66%14.70%
Crude Oil-CL=F$75.44$86.26$85.25-1.17%13.00%
Gold-GC=F$1,830.30$1,727.10$1,683.70-2.51%-8.01%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • The latest data does not support the Federal Reserve scaling back its aggressive policies aimed at curbing inflation. The Consumer Price Index advanced 0.1% in August after being unchanged in July. Price increases were broad-based in August, with shelter, food, and medical care among the largest contributors. Those increases were mostly offset by a 10.6% decrease in gasoline prices. Other areas that declined last month included airline fares, communication, and used cars and trucks. Core prices, excluding volatile food and energy, rose 0.6% last month, higher than the 0.3% increase in July. For the 12 months ended in August, the CPI advanced 8.3%, down marginally from the 8.5% increase for the year ended in July. Core prices rose 6.1% for the 12 months ended in August, up from the 5.9% increase for the 12 months ended in July.
  • Prices at the producer level fell in August for the second consecutive month. The Producer Price Index (a gauge of prices at the wholesale level) declined 0.1% last month after decreasing 0.4% in July. For the 12 months ended in August, producer prices have risen 8.7%, the lowest annual increase since August 2021. Prices for goods fell 1.2% in August, while prices for services rose 0.4%. Producer prices less food, energy, and trade services moved up 0.2% in August, and have increased 5.6% over the past 12 months. Pulling goods prices lower was a 6.0% drop in energy prices, led by a 12.7% decline in gasoline prices. Goods prices less foods and energy actually rose 0.2% last month.
  • Both import and export prices declined in August. Import prices fell 1.0% last month after retreating 1.5% in July. Import prices advanced 7.8% for the year ended in August, the smallest 12-month increase since the 12-months ended in March 2021. Import fuel prices decreased 6.8% in August for the second consecutive month. Despite the recent declines, import fuel prices rose 48.5% from August 2021 to August 2022. Prices for nonfuel imports declined 0.2 percent in August following a 0.5- percent decrease in July. Lower agricultural and nonagricultural prices each contributed to the August decline in export prices. Nevertheless, export prices advanced 10.8% over the past 12 months.
  • Retail food and services sales for August rose 0.3% from the previous month and 9.1% above August 2021. Retail trade sales were up 0.2% in August and 8.9% over the past 12 months. Businesses that saw an increase in sales last month included motor vehicle and parts dealers; building material and garden equipment and supplies dealers; food and beverage stores; clothing and clothing accessories stores; sporting goods, hobby, musical instrument, and book stores; general merchandise stores; and food services and drinking places. Nonstore (online) retailers saw sales drop in August, as did gasoline stations, health and personal care stores, and furniture and home furnishing stores.
  • Industrial production decreased 0.2% in August. Manufacturing output edged up 0.1% after increasing 0.6% in July. The index for mining was unchanged, while the index for utilities decreased 2.3%. Total industrial production in August was 3.7% above its year-earlier level.
  • The federal government deficit for August was $219.6 billion, $8.5 billion greater than the July deficit. Through 10 months of the fiscal year, the deficits sits at $945.7 billion, 187% under the deficit over the same period in the previous fiscal year. Total government receipts for this fiscal year are $4,408.4 billion compared to $3,586.5 billion over the same period in the last fiscal year. Conversely, total government outlays through the first 10 months of this fiscal year are $942.9 billion less than the government expenditures over the same period in the previous fiscal year.
  • The national average retail price for regular gasoline was $3.690 per gallon on September 12, $0.056 per gallon below the prior week’s price but $0.525 higher than a year ago. Also as of September 12, the East Coast price decreased $0.086 to $3.527 per gallon; the Gulf Coast price fell $0.103 to $3.126 per gallon; the Midwest price dropped $0.067 to $3.571 per gallon; the West Coast price slid $0.084 to $4.825 per gallon; and the Rocky Mountain price fell $0.051 to $3.889 per gallon. Residential heating oil prices averaged $3.579 per gallon on September 9, about $0.001 per gallon more than the prior week’s price. In the first half of 2022, U.S. exports of petroleum products averaged nearly 6.0 million barrels per day, or 11.0%, over the same period last year. According to the latest data from the U.S. Energy Information Administration, the increase in exports of petroleum products is the highest first half of the year exports since 1981.
  • For the week ended September 10, there were 213,000 new claims for unemployment insurance, a decrease of 5,000 from the previous week’s level, which was revised down by 4,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended September 3 was 1.0%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended September 3 was 1,403,000, an increase of 2,000 from the previous week’s level, which was revised down by 72,000. States and territories with the highest insured unemployment rates for the week ended August 27 were New Jersey (2.2%), California (1.8%), Rhode Island (1.8%), New York (1.7%), Puerto Rico (1.7%), Connecticut (1.6%), Massachusetts (1.5%), Pennsylvania (1.3%), Nevada (1.2%), Illinois (1.1%), and Oregon (1.1%).The largest increases in initial claims for the week ended September 3 were in Oklahoma (+1,935), Pennsylvania (+1,069), Kentucky (+824), Ohio (+659), and Indiana (+610), while the largest decreases were in New York (-3,662), Michigan (-2,132), Connecticut (-1,285), Alabama (-314), and Virginia (-310).
  •  

Eye on the Week Ahead

The August data for housing starts and existing home sales is available this week. The residential sector has slowed considerably from its torrid pace in 2021. Also this week, attention is focused on the latest meeting of the Federal Open Market Committee. It is expected that the Committee will hike interest rates by 75 basis points as it attempts to temper rising inflation.

What I’m Watching This Week – 12 September 2022

The Markets (as of market close September 9, 2022)

Are investors accepting the Federal Reserve’s hawkish path to reduce inflation? Last week’s market performance may lend credence to that possibility, as each of the benchmark indexes listed here posted solid gains, reversing three weeks of losses. A jump in tech shares pushed the Nasdaq up to its highest level since late August. The S&P 500 passed its 100-day average, and the Russell 2000 added more than 4.0%. The dollar dipped lower, moving away from a record high. Gold prices increased. Crude oil prices decreased for the second consecutive week. There have been few signs that the aggressive interest-rate hike agenda pushed by the Fed will hinder the economy, possibly easing investor worries.

Stocks edged lower last Tuesday to kick off the holiday-shortened week. The Russell 2000 dropped 1.0%, followed by the Nasdaq (-0.7%), the Dow and the Global Dow (-0.6%), and the S&P 500 (-0.4%). Every market sector except energy moved higher. The yield on 10-year Treasuries jumped 15.0 basis points to 3.34%. Crude oil prices fell nearly $0.50, settling at $86.73 per barrel. The dollar rose, while gold prices fell.

Wall Street enjoyed its best day in a month last Wednesday as stocks rebounded and bond yields tumbled. The Nasdaq surged to its biggest jump in three weeks after gaining 2.1%. The small caps of the Russell 2000 added 2.1%, while the S&P 500 (1.8%) and the Dow (1.4%) notched gains. The Global Dow rose 0.6%. Crude oil prices fell to a new seven-month low after settling at $81.87 per barrel. Ten-year Treasury yields dipped 7.5 basis points to 3.26%. The dollar declined 0.6%, while gold prices jumped nearly $16.00 to $1,728.60 per ounce.

Last Thursday, gains by financial and health-care stocks helped drive Wall Street to its second consecutive positive session. While each of the benchmark indexes listed here gained ground, markets across the globe declined over worries that aggressive policies aimed at curtailing inflation would stall the economy. Indicative of monetary tightening, the European Central Bank hiked interest rates by 75 basis points and indicated further hikes were likely. Domestically, the Russell 2000 and the Global Dow rose 0.8%. The S&P 500 gained 0.7%, while the Dow and the Nasdaq added 0.6%. Ten-year Treasury yields climbed 2.7 basis points, ending the day at 3.29%. Crude oil prices inched higher, the dollar dipped lower, and gold prices fell 0.5% to $1,719.30 per ounce.

Stocks extended last Thursday’s gains into Friday as investors gobbled up perceived bargains after three weeks of declines. Each of the benchmark indexes added value last Friday, led by the Nasdaq (2.1%), followed by the Russell 2000 (1.9%), the Global Dow (1.7%), the S&P 500 (1.5%), and the Dow (1.2%). The market sectors rose higher, led by communication services, consumer discretionary, energy, and information technology. Crude oil prices rose $2.72 to $86.26 per barrel. Gold prices advanced, while the dollar dipped lower. Yields on 10-year Treasuries increased 2.9 basis points, reaching 3.32%.

Stock Market Indexes

Market/Index2021 ClosePrior WeekAs of 9/9Weekly ChangeYTD Change
DJIA36,338.3031,318.4432,151.712.66%-11.52%
Nasdaq15,644.9711,630.8612,112.314.14%-22.58%
S&P 5004,766.183,924.264,067.363.65%-14.66%
Russell 20002,245.311,809.751,882.854.04%-16.14%
Global Dow4,137.633,499.313,564.661.87%-13.85%
Fed. Funds target rate0.00%-0.25%2.25%-2.50%2.25%-2.50%75 bps225 bps
10-year Treasuries1.51%3.19%3.32%13 bps181 bps
US Dollar-DXY95.64109.57108.98-0.54%13.95%
Crude Oil-CL=F$75.44$87.19$86.26-1.07%14.34%
Gold-GC=F$1,830.30$1,721.60$1,727.100.32%-5.64%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • According to the latest report the S&P Global US Services PMI™ revealed that business activity in the services sector in August contracted at its sharpest pace since May 2020. Weak domestic and foreign demand stunted new orders, which led to the softest rate of hiring in the services sector since January. Input and output cost inflation eased to the slowest rate in a year and a half.
  • The goods and services trade deficit for July declined by $10.2 billion, or 12.6%, from June. A marginal (0.2%) increase in exports was outpaced by a 2.9% drop in imports. Year to date, the goods and services deficit increased by $136.6 billion, or 29.0%, from the same period in 2021. Exports increased 19.9%, while imports increased 22.1%.
  • The national average retail price for regular gasoline was $3.746 per gallon on September 5, $0.081 per gallon below the prior week’s price but $0.570 higher than a year ago. Also as of September 5, the East Coast price decreased $0.109 to $3.613 per gallon; the Gulf Coast price fell $0.127 to $3.229 per gallon; the Midwest price dropped $0.037 to $3.638 per gallon; the West Coast price slid $0.042 to $4.741 per gallon; and the Rocky Mountain price fell $0.080 to $3.940 per gallon. Residential heating oil prices averaged $3.578 per gallon on September 2, about $0.430 per gallon less than the prior week’s price.
  • For the week ended September 3, there were 222,000 new claims for unemployment insurance, a decrease of 6,000 from the previous week’s level, which was revised down by 4,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended August 27 was 1.0%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended August 27 was 1,473,000, an increase of 36,000 from the previous week’s level, which was revised down by 1,000. States and territories with the highest insured unemployment rates for the week ended August 20 were New Jersey (2.2%), California (1.9%), Rhode Island (1.8%), Connecticut (1.7%), New York (1.7%), Puerto Rico (1.7%), Massachusetts (1.5%), Pennsylvania (1.3%), and Nevada (1.2%). The largest increases in initial claims for the week ended August 27 were in New York (+4,630), Michigan (+1,199), South Carolina (+290), Hawaii (+263), and New Jersey (+256), while the largest decreases were in Connecticut (-2,635), Oklahoma (-1,260), Missouri (-1,250), Georgia (-853), and California (-802).
  •  

Eye on the Week Ahead

Several important indicators of inflation are out this week with the August releases of the Consumer Price Index, the Producer Price Index, and the report on import and export prices. Each of these indicators showed that inflation subsided in July with the CPI registering no change, while producer prices fell 0.5%, import prices dipped 1.4%, and export prices slid 3.3%. Similar data for August may influence the Federal Reserve to scale back its current aggressive economic tightening policy.

What I’m Watching This Week – 6 September 2022

The Markets (as of market close September 2, 2022)

Equities suffered losses for the third consecutive week, as investors anticipated continued aggressive moves by the Federal Reserve to combat inflation. The S&P 500 extended its longest losing streak since mid-June. The latest labor report (see below) seemed to validate the Fed’s contention that the economy is strong enough to endure more tightening. The tech-heavy Nasdaq and the Russell 2000 lost more than 4.0%. Meanwhile, a key Russian gas pipeline to Europe remained closed, increasing the likelihood of blackouts and rationing. Restrictions on natural gas supplies, coupled with the possibility that the European Central Bank could raise interest rates by 75 basis points, is worried investors about the probability of an economic recession in Europe that would impact the U.S. economy. Weakening demand sent crude oil prices lower. The dollar inched higher, while gold prices declined.

Stocks continued to trend lower last Monday, adding to the prior week’s losses. Each of the benchmark indexes listed here fell deeper into the red, led by the Nasdaq, which slid 1.0%, dragged lower by falling megacap technology and growth shares. The Russell 2000 (-0.9%), the S&P 500 (-0.7%), the Global Dow and the Dow (-0.6%) also dropped lower, while the yield on 10-year Treasuries added 7.5 basis points, closing at 3.11% as bond prices slid lower. Crude oil prices jumped $3.78 to hit $96.84 per barrel on possible OPEC+ output cuts. The dollar ended the day flat, while gold prices inched higher.

Wall Street saw stocks fall for a third consecutive session last Tuesday. The Nasdaq and the S&P 500 slid to their lowest levels in a month. As more Fed officials continued to echo Fed Chair Jerome Powell’s intention to stamp down inflation, investors were preparing for ongoing interest-rate hikes and the potential of a waning economy. The Russell 2000 fell the furthest last Tuesday, closing down 1.5%, followed by the Nasdaq and the S&P 500 (-1.1%), the Dow (-1.0%), and the Global Dow (-0.9%). Crude oil prices fell nearly $5.00 to hit $92.16 per barrel amid concerns that a global recession would stunt demand. Ten-year Treasury yields were flat, ending the day where they began at 3.11%. The dollar and gold prices dipped lower.

Stocks rallied for most of the day last Wednesday, only to close the day and the month of August in the red. The Dow dropped 0.9%, while the Global Dow and the S&P 500 declined 0.8%. The Nasdaq (-0.6%) and the Russell 2000 (-0.5%) also dipped lower. Diminishing demand dragged crude oil prices lower, decreasing $2.64 to $89.00 per barrel. Yields on 10-year Treasuries added 2.3 basis points to reach 3.13%. The dollar slipped lower, while gold prices lost $14.60, lagging to $1,721.70 per ounce.

Wall Street was mixed to begin September. Last Thursday saw the large caps of the Dow (0.5%) and the S&P 500 (0.3%) close higher, while the Nasdaq (-0.3%), the Russell 2000 (-1.2%), and the Global Dow (-1.1%) edged lower. The dollar surged to a record high on speculation that the Fed will raise interest rates 75 basis points at its meeting later in the month. Ten-year Treasury yields vaulted 13.2 basis points, reaching 3.26%. Crude oil prices dropped for the third consecutive session, ending the day around $86.26 per barrel. Gold prices fell more than $20.00, slipping to $1,705.80 per ounce.

Last Friday, the majority of the benchmark indexes listed here dipped lower, with only the Global Dow ticking marginally higher. The Nasdaq slid -1.3%, while the S&P 500 and the Dow dropped 1.1% on the day. The small caps of the Russell 2000 declined 0.7%. Bond prices rose, dragging yields lower. Ten-year Treasury yields fell 7.2 basis points, closing last Friday at 3.19%. Crude oil prices inched up to $86.87 per barrel. The dollar was relatively flat, while gold prices climbed higher.

Stock Market Indexes

Market/Index2021 ClosePrior WeekAs of 9/2Weekly ChangeYTD Change
DJIA36,338.3032,283.4031,318.44-2.99%-13.81%
Nasdaq15,644.9712,141.7111,630.86-4.21%-25.66%
S&P 5004,766.184,057.663,924.26-3.29%-17.66%
Russell 20002,245.311,899.841,809.75-4.74%-19.40%
Global Dow4,137.633,607.693,499.31-3.00%-15.43%
Fed. Funds target rate0.00%-0.25%2.25%-2.50%2.25%-2.50%75 bps225 bps
10-year Treasuries1.51%3.03%3.19%16 bps168 bps
US Dollar-DXY95.64108.81109.570.70%14.57%
Crude Oil-CL=F$75.44$92.91$87.19-6.16%15.58%
Gold-GC=F$1,830.30$1,749.90$1,721.60-1.62%-5.94%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • Job gains slowed slightly in August, although they came in on the high side of expectations. According to the latest data from the Bureau of Labor Statistics, there were 315,000 new jobs added last month, down from July’s total of 526,000. Nevertheless, total employment has risen 5.8 million over the past 12 months, which is 240,000 higher than its pre-pandemic level in February 2020. In August, job growth occurred in professional and business services, health care, and retail trade. The unemployment rate rose 0.2 percentage point to 3.7%, and the number of unemployed persons increased by 344,000 to 6.0 million. The number of people who permanently lost jobs increased by 188,000 to 1.4 million. The labor force participation rate increased by 0.3 percentage point to 62.4%, 1.0 percentage point below its February 2020 level. The employment-population ratio was little changed at 60.1% in August and remains 1.1 percentage point below its February 2020 value. In August, 6.5% of employed persons teleworked because of the coronavirus pandemic, down from 7.1% in the prior month. However, 1.9 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic — down from 2.2 million in July. In August, average hourly earnings increased by $0.10 to $32.36. Average hourly earnings have risen 5.2% over the past 12 months. The average workweek decreased by 0.1 hour to 34.5 hours last month. While labor conditions lost some momentum in August, there is still plenty of strength in the overall data, enough to support the Federal Reserve’s aggressive policies to curb inflation.
  • In July, there were 11.2 million job openings, little changed from the previous month, according to the latest Job Openings and Labor Turnover Summary. Hires and separations in July were 6.4 million and 5.9 million, respectively, also little changed from June’s totals. Within separations, the number of quits can serve as a measure of workers’ willingness or ability to leave jobs. There were 4.2 million quits in July, relatively unchanged since April 2022.
  • The S&P Global US Manufacturing Purchasing Managers’ Index™ posted 51.5 in August, down from 52.2 in July. The August reading was the lowest since July 2020. New orders fell for the third consecutive month in August as the impact of rising inflation and economic uncertainty diminished client demand. While employment rose, it did so at the slowest pace since January, as backlogs of work increased only marginally. In an effort to drive sales and pass on some of the moderation in costs, price increases were at the weakest rate in more than a year and a half.
  • The national average retail price for regular gasoline was $3.827 per gallon on August 29, $0.053 per gallon below the prior week’s price but $0.688 higher than a year ago. Also as of August 29, the East Coast price decreased $0.044 to $3.722 per gallon; the Gulf Coast price fell $0.047 to $3.356 per gallon; the Midwest price dropped $0.055 to $3.675 per gallon; the West Coast price slid $0.066 to $4.783 per gallon; and the Rocky Mountain price fell $0.132 to $4.020 per gallon. Residential heating oil prices averaged $4.008 per gallon on August 26, about $0.307 per gallon more than the prior week’s price. According to the U.S. Energy Information Administration report of August 31, the retail price for regular gasoline averaged $3.83 per gallon on August 29, the Monday before the Labor Day weekend. This is an increase of $0.69 per gallon from the same time in 2021. Retail gasoline prices have fallen every week since June 13. Nevertheless, retail gasoline prices ahead of Labor Day were the highest since 2014.
  • For the week ended August 27, there were 232,000 new claims for unemployment insurance, a decrease of 5,000 from the previous week’s level, which was revised down by 6,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended August 20 was 1.0%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended August 20 was 1,438,000, an increase of 26,000 from the previous week’s level, which was revised down by 3,000. States and territories with the highest insured unemployment rates for the week ended August 13 were New Jersey (2.2%), Puerto Rico (2.0%), Connecticut (1.9%), California (1.8%), Rhode Island (1.8%), New York (1.6%), Massachusetts (1.5%), Pennsylvania (1.5%), Alaska (1.2%), Illinois (1.2%), Oregon (1.2%), and Nevada (1.2%). The largest increases in initial claims for the week ended August 20 were in Arkansas (+451), Illinois (+428), Connecticut (+390), New York (+336), and Rhode Island (+219), while the largest decreases were in California (-2,130), New Jersey (-1,400), Indiana (-1,263), Oklahoma (-1,174), and Michigan (-714).

Eye on the Week Ahead

Labor Day week has a dearth of major economic data available. Aside from the trade deficit report, which is for July, and the services purchasing managers’ index, there is little else available. Trading should also be light this holiday-shortened week.

Monthly Market Review – August 2022

The Markets (as of market close August 31, 2022)

Through the first half of August, the stock market continued to ride July’s rally. Including the first two weeks of August, stocks had posted four consecutive weekly gains — the longest weekly rally of 2022. The latest inflation data showed prices had fallen in July, bolstering investor confidence that the Fed may begin to reel in its aggressive interest-rate hike policy. By mid-August, the S&P 500 had recouped half of its losses from the beginning of the year, and the Nasdaq had risen over 20.0% from its low in June. U.S. corporate profits rose 9.1% to a fresh record high of $2.62 trillion in the second quarter of 2022, following a 4.9% drop in the previous period. It appeared that even if the Fed continued its hawkish push to get inflation down to the 2.0% target, the economy had thus far been resilient, with the labor market continuing to show strength, while industrial production advanced.

Despite these developments, Federal Reserve officials maintained their hawkish rhetoric. Then the stock rally of the summer of 2022 came to an abrupt end. First, the release of the minutes of the July meeting of the Federal Open Market Committee, revealing that several Committee members were concerned that inflation remained unacceptably high, and that, despite declines in oil and some commodities, there was little evidence to date that inflation pressures were subsiding. Then Fed Chair Jerome Powell spoke before the Jackson Hole Economic Symposium and reiterated the Fed’s resolve to stamp down inflation, even if that means slower economic growth and “some pain on households.” Investors reacted by pulling from equities, sending stock values lower, while giving back gains enjoyed earlier in the month. Each of the benchmark indexes ended August in the red, led by the tech-heavy Nasdaq, followed by the S&P 500 and the Dow.

Bond prices also fell in August, pushing yields higher. Ten-year Treasury yields rose nearly 50 basis points in August. Two-year Treasury yields were about 33 basis points higher, resulting in an inverted yield curve, which may be an indicator of a recession. The dollar rose higher against a basket of world currencies. Gold, like most other commodities, slid lower in August.

Crude oil prices declined for the third consecutive month in August, as rising inflation has cut into consumer spending, weakening demand. Gas prices also continued to fall in August after reaching record highs in May and June. The national average retail price for regular gasoline was $3.827 per gallon on August 29, down from $4.330 on July 25 but $0.688 higher than a year ago.

Stock Market Indexes

Market/Index2021 ClosePrior MonthAs of August 31Monthly ChangeYTD Change
DJIA36,338.3032,845.1331,510.43-4.06%-13.29%
Nasdaq15,644.9712,390.6911,816.20-4.64%-24.47%
S&P 5004,766.184,130.293,955.00-4.24%-17.02%
Russell 20002,245.311,885.731,844.12-2.21%-17.87%
Global Dow4,137.633,639.483,528.62-3.05%-14.72%
Fed. Funds target rate0.00%-0.25%2.25%-2.50%2.25%-2.50%75 bps225 bps
10-year Treasuries1.51%2.64%3.13%49 bps162 bps
US Dollar-DXY95.64105.83108.712.72%13.67%
Crude Oil-CL=F$75.44$98.23$89.00-9.40%17.97%
Gold-GC=F$1,830.30$1,778.80$1,721.70-3.21%-5.93%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Latest Economic Reports

  • Employment: Employment rose by 528,000 in July, well above the revised June total of 398,000 and exceeding the prior four-month average (388,000). Job growth was widespread in July, led by gains in professional and business services, leisure and hospitality, and health care. With the July increase, employment has increased by 22.0 million since reaching a low in April 2020 and has returned to its pre-pandemic level of February 2020. The unemployment rate edged down to 3.5% in July, and the number of unemployed persons dipped marginally to 5.7 million, with both measures returning to their pre-pandemic levels. Among the unemployed, the number of workers who permanently lost their jobs was 1.2 million in July (1.3 million in June). In July, the number of persons who were unable to work because their employer closed or lost business due to the pandemic rose to 2.2 million, up from 2.1 million in June. The labor force participation rate was little changed at 62.1% in July. The employment-population ratio, at 60.0%, was also little changed from the previous month. Both measures remain below their February 2020 values (63.4% and 61.2%, respectively). In July, average hourly earnings rose by $0.15 to $32.27. Over the 12 months ended in July, average hourly earnings increased by 5.2%. The average work week was 34.6 hours in July, unchanged for the fiftieth month in a row.
  • There were 243,000 initial claims for unemployment insurance for the week ended August 20 (256,000 on July 23), while the total number of insured unemployment claims was 1,415,000 as of August 13 (1,359,000 on July 16). A year ago, there were 395,000 initial claims for unemployment insurance and 2,804,000 total insured unemployment claims.
  • FOMC/interest rates: The Federal Open Market Committee did not meet in August and does not meet again until mid-September. Nevertheless, much of the rhetoric from Federal Reserve officials points to another interest-rate hike of at least 75 basis points.
  • GDP/budget: The economy has decelerated for two quarters in a row. Gross domestic product decreased 0.6% in the second quarter of 2022 after falling 1.6% in the first quarter. A portion of the second-quarter downturn is attributable to sectors impacted by higher interest rates that are cutting into demand (e.g., housing, nonresidential fixed investment), while rising inflation and ongoing supply-chain disruptions are impacting production. Consumer spending rose 1.5% in the second quarter after increasing 1.8% in the first quarter. Most of the increase in consumer spending is attributable to a 3.6% jump in services, while spending on durables slid 0.1%. Also dragging down GDP was a 4.5% decline in fixed investment, within which residential fixed investment dropped 16.2%, evidence of the slowdown in the housing sector. Nonresidential (business) fixed investment was unchanged in the second quarter after rising 10.0% in the previous quarter. Exports rose 17.6% in the second quarter, while imports, which are a negative in the calculation of GDP, advanced 2.8% after jumping 18.9% in the first quarter. In the second quarter, the personal consumption expenditures price index, a measure of inflation, increased 7.1%, the same increase as in the first quarter.
  • The Treasury budget deficit came in at $211.1 billion in July, up from $88.8 billion in June but down from the deficit of $302.1 billion in July 2021. Through the first 10 months of fiscal year 2022, the deficit sits at $726.1 billion, $1,813.9 billion lower than the deficit over the same period in fiscal year 2021, as outlays dropped $1,027.2 billion while receipts increased $786.6 billion. So far in this fiscal year, individual income tax receipts have risen 32.7%, and corporate income tax receipts have increased 11.4%.
  • Inflation/consumer spending: Overall, inflationary pressures weakened in July. According to the latest Personal Income and Outlays report, the personal consumption expenditures price index, a measure of inflation favored by the Federal Reserve, fell 0.1% in July after increasing 1.0% the previous month. Consumer prices have risen 6.3% since July 2021, down from the 12-month spread for the period ended in June 2021 (6.8%). Personal income and disposable personal income increased 0.2% in July after increasing 0.7% in June. Consumer spending inched up 0.1% in July, following a 1.0% increase in June.
  • The Consumer Price Index was unchanged in July after climbing 1.3% in the previous month. For the 12 months ended in July, the CPI increased 8.5% (9.1% for the 12-month period ended in June). Both the monthly and 12-month rates were below expectations. In July, the CPI less food and energy rose 0.3% after increasing 0.7% in June. Pulling the CPI lower in July was a 7.7% drop in gasoline prices, offsetting a 1.1% increase in prices for food and a 0.5% rise in prices for shelter. Nevertheless, for the 12 months ended in July, food prices are up 10.9%, the largest increase since May 1979. And despite the decline in July, gasoline prices have risen 44.0% over the last 12 months.
  • Prices that producers receive for goods and services dipped 0.5% in July, following increases of 1.0% in June and 0.8% in May. Producer prices have increased 9.8% since July 2021 (11.3% for the 12 months ended in June). Prices less foods, energy, and trade services increased 0.2% in July and 5.8% since July 2021. In July, the decrease in the producer price index was attributable to a 1.8% decline in prices for goods, the largest decline since April 2020. In contrast, prices for services advanced 0.1%. In July, 80.0% of the drop in prices for goods was attributable to a 16.7% decrease in gasoline prices. Food prices, on the other hand, rose 1.0% in July after falling 0.2% in June.
  • Housing: Sales of existing homes retreated for the sixth consecutive month in July, falling 5.9% from the June estimate. Year over year, existing home sales were 20.2% under the July 2021 total. According to the latest survey from the National Association of Realtors®, mortgage rates have risen sharply over a short span of time, impacting potential home buyers. The median existing-home price was $403,800 in July, down from $413,800 in June but 10.8% higher than July 2021 ($364,600). Unsold inventory of existing homes represents a 3.3-month supply at the current sales pace, up from a 2.9-month supply in June. Sales of existing single-family homes also fell, down 5.5% in July. Sales of existing single-family homes have fallen 19.0% since June 2021. The median existing single-family home price was $410,600 in July, down from $420,900 in June but 130.6% over the July 2021 price.
  • Sales of new single-family homes also declined in July, falling 12.6% from June’s total and 29.6% from July 2021. The median sales price of new single-family houses sold in July was $439,400 ($414,900 in June). The July average sales price was $546,800 ($457,300 in June). The inventory of new single-family homes for sale in July represent a supply of 10.9 months at the current sales pace, up from June’s 9.2-month supply.
  • Manufacturing: Industrial production increased 0.6% in July. Industrial production was flat in June. In July, manufacturing output gained 0.7% after falling 0.4% in each of the previous two months. The production of motor vehicles and parts rose 6.6% in July, while factory output elsewhere moved up 0.3%. In July, the index for mining rose 0.7%, while the index for utilities fell 0.8%. Overall, total industrial production in July was 3.9% higher than it was a year earlier. Since July 2021, manufacturing has risen 3.2%, mining has jumped 7.9%, while utilities have increased 2.2%.
  • July saw new orders for durable goods increase less than $0.1 billion, virtually unchanged from the June total. Excluding transportation, new orders rose 0.3% in July. Excluding defense, new orders increased 1.2%. Transportation equipment, up for three consecutive months, decreased in July, falling 0.7% from the previous month.
  • Imports and exports: Import prices declined 1.4% in July for the first time since December 2021, according to the U.S. Bureau of Labor Statistics. Prices rose 0.3% in June. The July decrease in import prices was the largest monthly decline since April 2020. Import prices rose 8.8% over the past 12 months, the smallest year-over-year increase since the 12-month period ended in March 2021. In July, lower fuel and nonfuel prices contributed to the monthly decrease. Fuel import prices fell 7.5% in July, following a 6.2% increase the previous month. Despite the July decline, import fuel prices advanced 56.6% over the past year. Prices for nonfuel imports declined for the third consecutive month, dipping 0.5% in July. Prices for U.S. exports fell 3.3% in July following a 0.7% rise the previous month. The July decline in export prices was the largest monthly decrease since April 2020. Lower agricultural and nonagricultural prices contributed to the July decline. Prices for exports have risen 13.1% since July 2021, the lowest annual advance since the 12-month period ended in March 2021.
  • The international trade in goods deficit was $89.1 billion in July, down $9.5 billion, or 9.7%, from June. Exports of goods were $181.0 billion in July, $0.4 billion less than in June. Imports of goods were $270.0 billion in July, $9.9 billion less than June imports.
  • The latest information on international trade in goods and services, released August 4, is for June and shows that the goods and services trade deficit declined by $5.3 billion, or 6.2%, to $79.6 billion from the May deficit. June exports were $260.8 billion, $4.2 billion more than May exports. June imports were $340.4 billion, $1.0 billion lower than May imports. Year over year, the goods and services deficit increased $134.1 billion, or 33.4%, from the same period in 2021. Exports increased $246.2 billion, or 20.0%. Imports increased $380.3 billion, or 23.3%.
  • International markets: Inflationary pressures continued to be felt around the world. Consumer prices rose 9.1% in the eurozone from a year earlier, increasing the likelihood that the European Central Bank will respond by aggressively raising interest rates. Vaulting inflation underscored the continued impact of the Russia-Ukraine war on Europe. In its latest move, Russia shut down its main artery for natural gas to Europe for maintenance, prompting European nations to scramble to fill gas storage facilities to prevent a shortage in the winter. Elsewhere, China’s factory activity remained in contraction in August, resulting in U.S. business confidence in China falling. Overall for the markets in August, the STOXX Europe 600 Index slid 4.5%. The United Kingdom’s FTSE fell nearly 2.0%. Japan’s Nikkei 225 Index rose 1.25%, while China’s Shanghai Composite Index advanced 1.2%.
  • Consumer confidence: The Conference Board Consumer Confidence Index® increased in August for the first time in the last four months. The August index stands at 103.2, up from 95.3 in July. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, improved to 145.4 in August, up from 139.7 in July. The Expectations Index, based on consumers’ short-term outlook for income, business, and labor market conditions, rose to 75.1 in August (65.6 in July).

Eye on the Month Ahead

The Federal Open Market Committee meeting in the middle of September is expected to culminate in an interest-rate hike of at least 75 basis points. Investors remain concerned that the Fed’s actions taken to try to slow inflation will also push the economy into a recession. Some economic sectors are showing signs of slowing down, particularly housing and retail sales, while gross domestic product retracted in the second quarter. As the third quarter of the year comes to a close, September may prove to be a month of more noticeable economic waning.