Weekly Market Commentary – 8/26/2022
-Darren Leavitt, CFA
Global financial markets were focused for most of the week on economic rhetoric from the annual Jackson Hole Economic Symposium hosted by the Kansas City Federal Reserve. Throughout the second half of the week, investors evaluated various Fed Presidents’ statements regarding the direction of US monetary policy. Federal Reserve Chairman Jerome Powell gave a short but to-the-point speech on Friday that dimmed the notion of a Fed pivot. The Chairman suggested that the Fed Funds Rate would be higher and elevated for longer and acknowledged that this would likely cause pain for US households and businesses. The equity markets sold off hard on the news while US Treasury trade was subdued.
The S&P 500 lost 4%, the Dow fell 4.2%, the NASDAQ tumbled 4.4%, and the Russell 2000 gave up 2.9%. The yield curve inverted this week, with much of the selling on the front end of the curve coming before Friday. The 2-year note yield increased fifteen basis points to 3.4%, while the 10-year bond yield increased five basis points to 3.04%. Oil prices increased 2.5% or $2.32 to $93.14 a barrel. Gold prices fell by $12.80 to 1750.2 an Oz. Copper prices increased by $0.03 to $3.66 an Lb. The US dollar was stronger across the major crosses as the Euro fell below parity.
The PCE, the Fed’s preferred measure of inflation, showed a decrease of 0.1% on a month-over-month basis and was up 6.3% year-over-year versus the increase of 6.8% in June. Core PCE, which excludes food and energy, was up 0.1% versus the estimated 0.3%. The reading fell to 4.6% from 4.8% on a year-over-year basis. High-frequency employment data continued to show a strong labor market. Initial Jobless Claims came in at 243k versus the estimate of 257k. Continuing claims fell to 1415k from the prior week’s reading of 1434k. New Home Sales showed continued weakness in the housing sector. Sales fell to 511k from the preceding month’s level of 590k. Weekly MBA Mortgage applications fell by 1.2%. The 2nd estimate of Q2 GDP came in at -0.6%, while the GDP Deflator increased to 8.9%. The final reading of the University of Michigan’s Consumer Sentiment Index rose to 58.2% from the prior month’s reading of 51.5% on a deceleration of inflation especially noticed at the gasoline pump.
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