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U.S. Equities Break Streak, Notch First Weekly Gain Since April 1st

Market Data as of Week Ending: 05/27/2022 unless noted otherwise

Equities

U.S. stock prices snapped the string of seven consecutive negative weeks as the S&P 500 recorded its best weekly result since November 2020, gaining nearly 7%. Earnings season ended with companies in the S&P 500 recording average earnings gain of 9% over the prior quarter, marking the slowest growth rate since the fourth quarter of 2020. Equity styles were mostly mixed with large growth being the differentiator, outpacing large value by 128 basis points. All eleven major economic sectors advanced, with consumer discretionary and energy stocks leading the way. The health care and communication services sectors lagged. Developed foreign and emerging market stocks posted a gain for the week but underperformed the U.S.

Bonds

U.S. Treasury yields dropped again as the 10-year treasury fell 0.04%, ending the week at 2.74%, as weaker manufacturing and services data weighed on yields. Credit sensitive bonds outperformed as a small risk on trade was in place for the week, while higher quality government bonds lagged. Credit spreads narrowed slightly, as yields for investment grade corporate bonds and high yield corporate bonds decreased, finishing the week at 4.2% and 7.2%, respectively.

Macroeconomic Data

Economic data releases were generally worse than expected but were largely overshadowed by Friday’s better-than-expected inflation reading. The personal consumption price index, rose just 0.2% in April, marking its smallest increase in a year and a half and brought the inflation rate over the past year down to 6.3%. The S&P flash global surveys showed U.S. businesses grew at their slowest pace in several months, as the manufacturing and services PMI’s fell to three-month lows in May. New home sales fell to 591,000, well off the forecasted 750,000 as surging home prices and mortgage rates discouraged buyers. Durable goods orders grew at 0.4% in April, missing forecasts and signaling slowing business investments. Consumers boosted their spending for the fourth straight month in April, rising by 0.9%, as they spent more on services and autos. The spending seemed to dip into some savings as the savings rate fell to 4.4%, its lowest in 14 years. Consumer sentiment dropped to 58.4 in May, nearing a decade low, as persistent inflation is weighing on consumers. Shares rose in Europe as central banks signaled that interest rate increases are likely to be gradual as the belief that inflation may be peaking grows.

 

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U.S. Stock Prices Declined for the Seventh Consecutive Week

Market Data as of Week Ending: 05/20/2022 unless noted otherwise

Equities

U.S. stock prices declined for the seventh consecutive week as the S&P 500 reached bear market territory, declining more than 20% from its peak in January, using intraday prices. The risk-off sentiment has intensified as several large retailers reported results below expectations and continue to cite supply issues along with cost and wage inflation, despite healthy demand. Value oriented stocks largely outperformed their growth counterparts and smaller companies outperformed large company peers. Eight of the eleven major economic sectors declined led by significant losses in the consumer staples and consumer discretionary sectors. The three exceptions with gains for the week were in the energy, health care, and utilities sectors. Developed foreign markets posted a gain for the week and emerging market stocks outperformed both developed markets and the U.S.

Bonds

U.S. Treasury yields dropped again as the 10-year treasury fell 0.15%, ending the week at 2.78%. Bond investors continue to face a challenging environment with higher rates on new issuance despite strong demand for high quality securities. Higher quality government bonds outperformed for the week while credit sensitive bonds lagged. Credit spreads continued to widen, especially for lower quality bonds, as yields for investment grade corporate bonds were relatively unchanged at 4.4%, while high yield corporate bonds increased, finishing the week at more than 7.8%.

Macroeconomic Data

Economic data releases were generally better than expected, but were largely overshadowed by comments from Fed policy makers that indicated tighter financial conditions were needed to tame inflation. Retail sales were better than expected in April and increased 0.9%, which was 8.2% higher compared to the same period last year. Despite the solid report, these readings are not adjusted for inflation and growth has been anemic after backing out higher prices. The housing market is facing significant headwinds of higher prices, higher mortgage rates and supply that remains tight. The National Association of Realtors reported that existing-home sales declined more than 2% in April, which was down nearly 6% from a year earlier. In Europe, the U.K. is also dealing with persistently high inflation as the country announced that consumer prices in April were 9% higher than a year earlier, a forty-year high.

 

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Growing Skepticism for a Soft Landing Weighs on Stocks

Market Data as of Week Ending: 05/13/2022 unless noted otherwise

Equities

U.S. stock prices generally declined for the sixth consecutive week as the S&P 500 inches dangerously close to bear market territory. A risk-off environment seems to be in place as investors appear to be growing increasingly weary that the Federal Reserve will be able to rein in inflation without causing a recession. Value oriented stocks largely outperformed their growth counterparts while the size factor was mixed. Most major S&P 500 sectors finished lower with the traditionally defensive consumer staples being the only sector to post a positive return for the week. Traditionally, cyclical and sensitive sectors such as real estate, consumer discretionary and information technology led to the downside. Energy lagged the broader market as choppy trading kept crude oil prices elevated over $100 per barrel. Developed foreign markets posted a negative weekly return but outperformed the U.S., while the decline in emerging markets was worse than developed markets and the U.S.

Bonds

U.S. Treasury yields fell nearly 0.20% as U.S. government bonds posted a modest comeback sending the 10-year treasury below the 3.0% mark, ending the week at 2.93%. Spreads widened over the week as demand for higher quality, longer maturity credits seemed to increase as risk-off sentiment took hold. Higher quality government bonds outperformed for the week while credit sensitive bonds lagged. Yields decreased for investment grade corporate bonds while high yield corporate bonds increased, finishing the week at nearly 4.4% and 7.6%, respectively.

Macroeconomic Data

Economic data was largely mixed as all eyes were focused on Wednesday’s inflation reading. Public expectations of inflation over the next year moderated in April as consumers now anticipate 6.3% inflation, down from 6.6% in March. The NFIB small-business index steadied in April, coming in at March’s reading of 93.2, surpassing expectations. The yearly inflation rate slowed in April to 8.3%, marking the first decline in eight months as lower gas prices were the main reason for the decline. However, the monthly core inflation rate, which strips out food and energy, was higher-than-expected at 0.6%. The University of Michigan’s consumer sentiment index fell to a preliminary 59.1 in May, its lowest level in more than 10 years. Shares in Europe rebounded last week as the ECB President said that their bond-buying program could end by early Q3 and be followed by a rate increase a few weeks later.

 

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Treasury Yields Reach Highest Level Since 2018

Market Data as of Week Ending: 05/06/2022 unless noted otherwise

Equities

U.S. stock prices generally declined for the fifth consecutive week as persistently high inflation and monetary policy remain front of mind for many investors. 87% of the companies in the S&P 500 have reported first quarter earnings, with 79% having reported a positive earnings surprise. Value oriented stocks outperformed their growth counterparts and large companies generally fared better than their smaller company peers. Performance dispersion was high among sectors as energy prices soared. Energy prices gained 10% for the week and were followed by small gains in the utilities, communication services, and financials sectors. Rising rates have started to pressure real estate since they rely heavily on debt financing. Real estate was the worst performing sector followed by consumer discretionary and consumer staples. Developed foreign markets posted a negative weekly return and lagged the U.S., while the decline in emerging markets was even more severe and finished the week down more than 4%.

Bonds

U.S. Treasury yields jumped nearly 0.20% as the Fed announced a widely anticipated 0.50% hike in policy rates. The 10-year treasury ended the week at 3.13%, its highest level since 2018. The front end of the curve was much more stable as the 2-year treasury remained nearly flat and ended the week at 2.74%. Higher quality government bonds outperformed for the week while credit sensitive bonds lagged. Yields increased for both investment grade corporate bonds and high yield corporate bonds as they finished the week at nearly 4.5% and 7.3%, respectively.

Macroeconomic Data

Economic data was largely overshadowed by the Fed’s policy meeting where all eyes were focused on plans to reduce the size of the balance sheet. The Fed announced that starting in June, they will reduce treasury and agency mortgage-backed securities with an aggregate value $47.5 billion, increasing the pace up to $95 billion over the following three months. Employers in the U.S. added 428,000 jobs, which was in line with consensus estimates, and the unemployment rate remained unchanged at 3.6%. In Europe, the Bank of England raised its key interest rate 0.25% to 1.0%, the highest level since 2009 as they continue to face many of the same inflation and supply issues in the U.S. China reported their steepest decline on record in services PMI data for April. Composite PMI in China was already well below 50 and dropped further to 37.20.

 

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Fourth Consecutive Week of Stock Price Declines

Market Data as of Week Ending: 04/29/2022 unless noted otherwise

Equities

U.S. stock prices declined for the fourth consecutive week as the Nasdaq Composite finished the month of April down more than 13%, its worst monthly result since October 2008. More than half of the companies in the S&P 500 have reported first quarter earnings, with 80% having reported a positive earnings surprise. There were not significant differences between size and style among large and mid-cap stocks, but small sized companies generally lagged. Performance dispersion was more prominent among sectors as companies in the materials, energy, and information technology sectors outperformed. All eleven economic sectors declined for the week, most notably consumer discretionary, real estate, and financials. Developed foreign markets posted a negative weekly return but held up better than the U.S., while emerging markets reversed recent trends and finished the week with a small gain.

Bonds

U.S. Treasury yields remain volatile and have continued to trend higher as the 10-year treasury ended the week slightly higher at 2.94%. For the month of April, the 10-year treasury yield increased more than 0.5%, its largest monthly increase since December 2009, and the Bloomberg US Aggregate Bond Index declined 3.79%. Higher quality government bonds outperformed for the week while credit sensitive bonds lagged. Yields increased for both investment grade corporate bonds and high yield corporate bonds as they finished the week above 4.3% and 7.0%, respectively.

Macroeconomic Data

Economic data releases were generally worse than expected. U.S. economic growth, as measured by real gross domestic product (GDP), came in well below expectations, declining 1.4% for the first quarter of 2022. Even after adjusting for inflation, consumer spending remains robust and increased 2.5%, but net exports detracted 3.2% from overall GDP growth. Core PCE, the Fed’s preferred inflation measure, increased 5.2%, compared to the same period last year, and is slightly lower than last month’s reading. Other economic data releases were mixed as consumer confidence narrowly declined in March and the Case Shiller Home Price Index rose 2.4% for the month of February. European GDP recorded a small positive increase of 0.2% in the first quarter as Europe is expected to announce additional sanctions on Russia. In Asia, the Bank of Japan raised its outlook for inflation and several companies warned of supply chain disruptions and an uncertain business outlook due to COVID restrictions in China.

 

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