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2020 Financial Markets Update

Week in Review: September 30, 2022

October 3, 2022

Recap & Commentary

Markets suffered another bruising week as investors continued to worry about inflation, future Federal Reserve rate hikes, and slowing global economic conditions. The declines pushed the S&P 500 back into bear market and left the index at new lows for 2022. Historically, September is the worst month for stocks, and 2022 was no exception with the S&P falling 9.3%, its largest monthly decline this year. Interest rates continued to rise with the 10-Year Treasury yield briefly reaching 4.0% for the first time since 2008.

Multiple Fed officials spoke during the week, reinforcing the message that the Fed must remain committed to fighting inflation despite the potential for economic “pain.” Responding to a question about increasing the Fed’s inflation target above 2%, St. Louis Fed President James Bullard described it as a “bad idea” saying that doing so would damage the Fed’s credibility and inject further uncertainty into the markets.

In a moment reminiscent of former European Central Bank (ECB) President Mario Draghi’s famous “Whatever it takes” pronouncement during the height of the European debt crisis, the Bank of England (BoE) announced a new bond-buying program “on whatever scale is necessary” in order to “restore orderly market conditions.” The BoE’s move followed the government’s surprise announcement to slash taxes and boost borrowing in an effort to stimulate growth. In the immediate aftermath of the announcement, British bond yields surged while the Pound fell to its lowest level on record against the U.S. dollar.

Economic Commentary

Economic data for the week was mixed, and readings on employment and inflation provided little relief to the narrative that the Fed must remain committed to tackling inflation. After seeing a small spike during the summer, initial jobless claims fell to a five-month low, suggesting that labor markets remain resilient despite the Fed’s declaration that its efforts to tame inflation will likely lead to higher unemployment. On the inflation front, the Fed’s preferred measure, core personal consumption expenditures (PCE), rose 0.6% from July, corroborating the reacceleration in prices recorded by core Consumer Price Index (CPI). Compared to a year ago, core PCE rose 0.2% to 4.9%, its fastest pace since April.

Consumer’s views of the economy were mixed with consumer confidence rising, and consumer sentiment falling. Within consumer sentiment, 5-year and 1-year inflation expectations fell slightly to 2.7% and 4.7% respectively, their lowest levels in over a year. The Fed has been clear that consumer inflation expectations factor into monetary policy, so any declines are welcome.

Durable goods orders fell for a second consecutive month. However, a core reading of business spending rose 1.3%, its highest level since January.

Of Note

CarMax and Nike joined a growing list of companies to report disappointing results raising concerns about economic growth. CarMax noted that buyers are being squeezed by higher prices and interest rates, while Nike said inventories ballooned in part due to weaker demand.

S&P 500-2.9%
Small Caps-0.9%
Intl. Developed-1.6%
Intl. Emerging-3.3%
U.S. Bond Market-1.0%
10-Year Treas. Yield3.83%
U.S. Dollar-0.9%
WTI Oil ($/bl)$80
Gold ($/oz)$1,668

The Week Ahead

  • Sept. Employment Report
  • ISM Manufacturing
  • ISM Services
  • Weekly Jobless Claims

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