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2020 Financial Markets Update

Week in Review: September 2, 2022

September 6, 2022

Recap & Commentary

Markets ended the week lower as Federal Reserve Chair Jay Powell’s Jackson Hole speech from the prior week continued to reverberate. The declines came despite generally better-than-expected economic data. Reflecting revised expectations that the Fed will remain aggressive for longer than previously expected, the 2-Year Treasury yield briefly rose above 3.50%, its highest level since 2007, before ending the week at 3.40%. At the same time, oil fell to its lowest level since January due to concerns that higher rates will lead to slower economic growth.

August saw unemployment rise 0.2% to 3.7%, its highest level since February. Since becoming increasingly aggressive in its efforts to quell inflation, the Fed has acknowledged that its actions will likely result in some economic “pain,” including a rise in unemployment. The August report, however, was somewhat of a goldilocks scenario with the higher unemployment attributable to more people looking for work, not an outright contraction of jobs.

In Europe, Russia announced an indefinite suspension of natural gas to Europe via a key pipeline, ostensibly due to maintenance issues. The move came shortly after the G-7 announced a price cap on Russian oil imports. The goals of this are to maintain economic pressure on Russia for invading Ukraine and to depress oil prices in an effort to alleviate global inflationary pressures. Details of the price cap must still be finalized, including securing agreement from all 27 EU members. The plan is to have the price cap in place by early December. The actions are the latest salvos in an economic tit-for-tat by both sides.

Economic Commentary

Nonfarm payrolls added another 315K jobs in August, following the creation of 526K jobs in July. Despite the increase, unemployment rose 0.2% to 3.7%, seemingly at odds with the data. The increase resulted from 786K individuals entering the workforce, boosting the labor force participation rate by 0.3%, the largest one-month gain since June 2020. However, at 62.4%, participation remains a full 1.0% below its February 2020 level. Greater participation should be good for employers seeking to hire employees, and potentially good for the Fed as more people looking for work could take some pressure off wage growth, which increased 5.2% in August from a year ago.

According to industry group ISM, manufacturing activity continued to expand in August. Hiring grew, following three months of contraction.  New orders also returned to growth, after falling in July to their lowest level since the start of the pandemic. In another positive development, input prices decelerated to their lowest level since June 2020, providing another data point that broader inflationary pressures continue to ease.

Consumer confidence rose more than expected in August, boosted by improved assessments of current and future economic conditions.  While consumers’ views of future conditions rebounded meaningfully from July’s nine-year low, the current level of 75.1 remains below 80, suggesting recession risks remain.

Of Note

Mikhail Gorbachev, the last Soviet leader, who ushered in a number of economic and political reforms, and who ultimately oversaw both the end of the Cold War and the dissolution of the Soviet Union, died.  He was 91.

S&P 500-3.3%
Small Caps-4.7%
Intl. Developed-3.1%
Intl. Emerging-3.4%
U.S. Bond Market-1.0%
10-Year Treas. Yield3.20%
U.S. Dollar0.7%
WTI Oil ($/bl)$87
Gold ($/oz)$1,723

The Week Ahead

  • ISM Services
  • Consumer Credit
  • Weekly Jobless Claims

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