Week in Review: August 12, 2022

Markets ended the week higher on encouraging inflation data, helping the S&P 500 notch its fourth consecutive weekly gain. Strong gains by the tech-heavy NASDAQ and Russell 2000 (small caps) resulted in both indices entering bull market territory, defined as a 20%+ gain from recent lows. That said, the two indices remain 19% and 17% below their respective all-time highs set in November 2021. The recent rally in equity markets has intensified the debate as to whether equity markets have indeed bottomed, or if they are simply experiencing a short-term bounce within a broader decline.

The release of consumer and producer inflation revealed that in aggregate, pricing pressures eased across the economy in July. Markets celebrated the news as it led to hopes that the Federal Reserve might not have to raise rates by another 0.75% at its September meeting. By Friday, markets were predicting a 0.50% increase at the next Fed meeting, whereas a week prior they were predicting a third consecutive 0.75% increase. It is important to remember that one month of data does not make a trend, and a similar “head fake” occurred in April when inflation data slowed slightly before reaccelerating. For the week at least, investors allowed themselves to celebrate the encouraging data.

Through Friday, 90% of S&P 500 companies had reported earnings. Thus far, according to S&P Global, 75% of those companies have beaten their consensus estimate, while 71% have beaten the revenue estimates.