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Inflation Increases to Highest Level in More Than 40 Years

Market Data as of Week Ending: 07/15/2022 unless noted otherwise

Equities

U.S. stock prices declined as inflation rose to 9.1%, the highest annual increase in more than 40 years. Typically, investors are already focused on quarterly financial results; however, this week’s sentiment was more centered on inflation and its influence on the upcoming Fed policy meeting. Value stocks narrowly outperformed their growth counterparts while small-sized companies generally lagged their mid and large company peers. Consumer staples was the only major economic sector with a gain, followed by relative outperformance in other traditionally defensive sectors, health care and utilities. Crude oil prices declined to less than $100 per barrel and energy stocks were among the worst performers along with the communication services, industrials and materials sectors. Developed foreign and emerging market stock prices also declined and underperformed relative to the U.S.

Bonds

Longer term U.S. Treasury yields declined as the 10-year U.S. Treasury fell to 2.92%. However, the 2-year yield was slightly higher ending the week at 3.13%. When short-term yields are higher than longer-term yields, it’s typically associated with slower growth and higher recession risks. Higher quality bonds outperformed and were led by outperformance from long duration government bonds. High yield corporate bonds lagged but still delivered gains across the yield curve. Yields on investment grade and high yield corporate bonds were little changed, finishing the week at 4.6% and 8.6%, respectively.

Macroeconomic Data

Economic releases were headlined by the monthly inflation readings that come from the Consumer Price Index (CPI). The June report showed a monthly increase of 1.3%, which was 9.1% higher than the same period 12 months ago. Even after excluding the more volatile food and energy prices, the monthly Core reading was 0.7% and gained 5.9% over the past year. Retail sales were better than anticipated and advanced 1.0% in June and 8.4% compared to the same period one year ago; however, those figures are not adjusted for inflation. Consumer sentiment beat expectations and rose from a record low of 50.0 in June to 51.1 in July. In Europe, the euro and the U.S. dollar were both priced at 1 for the first time in two decades as the European central bank still has not lifted policy rates to address inflation in the region.

 

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U.S. Stock Prices Rise as Sentiment Improves

Market Data as of Week Ending: 07/08/2022 unless noted otherwise

Equities

U.S. stock prices advanced as signs start to emerge that the economy may be able to withstand an imminent recession. Investors will soon focus on quarterly financial results, but this week’s sentiment was more focused on the Fed. Minutes from the June meeting were released and recent comments from Fed voting members were optimistic about reducing inflation without forcing the economy into a recession. Growth stocks rotated back into favor and outperformed their value counterparts while small-sized companies generally outperformed their mid and large company peers. Consumer discretionary, information technology, and communication services sectors outperformed with solid gains. However, nearly half the major economic sectors recorded losses for the week led by declines in the energy, utilities, and materials sectors. Developed foreign and emerging market stock prices also recorded gains for the week, but underperformed relative to the U.S.

Bonds

U.S. Treasury yields rose after three consecutive weeks of declines. The 10-year U.S. Treasury rose to 3.08% and the 2-year yield was slightly higher at 3.11%. Rising yields are generally viewed as positive for the economy; however, when short-term yields are higher than longer-term yields, it’s typically associated with slower growth and higher recession risks. High yield corporate bonds outperformed and were the only major bond segment to record gains for the week. Higher quality and longer duration bonds lagged as investors were willing to accept more credit risk. Yields on investment grade corporate bonds narrowly rose while high yield corporate bonds declined, finishing the week at 4.7% and 8.6%, respectively.

Macroeconomic Data

Given the lack of volume from an economic data perspective, investors were focused on the two monthly job reports from the Labor Department and comments from the Federal Reserve. Job openings declined from 11.7 million to 11.3 million and there were 372,000 jobs added in the month of June. The unemployment level remains steady at 3.6% and nearly all the jobs lost from the pandemic have been recovered. Investors expect the Fed to announce another rate hike of 0.75% at their meeting later this month as Fed policy makers have foreshadowed their views through public comments. In Europe, Boris Johnson announced his intention to resign amidst a series of scandals. Meanwhile, in Asia the assassination of Shinzo Abe, Japan’s former prime minister, shocked the world.

 

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Stocks Decline as Recession Threats Loom

Market Data as of Week Ending: 07/01/2022 unless noted otherwise

Equities

U.S. stock prices could not maintain positive momentum as major indices rotated back toward losses for the week. A fresh wave of weak economic data was released, and several companies warned that profitability will be challenged as demand is expected to slow. Second quarter earnings growth expectations have declined by nearly 2% over the past three months. Value stocks returned to the forefront and outperformed their growth counterparts while mid-sized companies generally outperformed their small and large company peers. Energy and traditionally more defensive sectors such as utilities, consumer staples, and health care were the only sectors to record gains. Consumer discretionary, information technology, and communication services sectors lagged in these more volatile and higher growth areas. Developed foreign and emerging market stock prices also declined with mixed results, relative to the U.S.

Bonds

U.S. Treasury yields fell for the third consecutive week as investors continue to price in higher probabilities that the U.S. is headed toward a recession. The 10-year U.S. Treasury fell to 2.88%, its lowest level in more than a month. Higher quality and longer duration bonds outperformed as investors showed a strong preference for safety and cash flow visibility. High yield bonds declined and were the worst performing segment across the curve. Yields on investment grade corporate bonds narrowly fell while high yield corporate bonds moved higher, finishing the week at 4.6% and 8.9%, respectively.

Macroeconomic Data

Economic data releases were largely disappointing as they were generally worse than expected. Consumer confidence has been declining and the Conference Board’s index dropped 4.5 points to its lowest level in nearly a decade. That sentiment is starting show in consumption activity as consumer purchases declined 0.4% in May, after adjusting for inflation. This was the first decline of the year and was largely driven by a pullback in purchases of goods. Inflation data from the PCE index showed some signs that inflation may be peaking as core prices (excludes food and energy prices) were up 0.3% in May, the same increase for the fourth consecutive month. In Europe, central bank policy makers contemplated the possibility of raising rates as high as 0.50% as inflation remains a global issue. According to Eurostat, inflation in the region accelerated to another record high of 8.6% in June.

 

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Stocks Snap Three-Week Losing Streak, Regain Footing

Market Data as of Week Ending: 06/24/2022 unless noted otherwise

Equities

U.S. stock prices snapped their three-week losing streak as major indices regained their footing after entering bear market territory. The S&P 500 gained 6.46% on the week as investors brushed aside lingering recession concerns and Fed Chair Powell’s hawkish Congressional testimony matched market expectations. Growth stocks continued their outperformance, outgaining value, and larger companies generally outperformed their small company peers. Nearly every sector in the S&P 500 recorded strong gains with consumer discretionary and health care leading the way. The energy sector was the exception, returning -1.55%, as oil prices fell on weak economic data and demand concerns. Developed foreign and emerging market stocks advanced but lagged the U.S.

Bonds

U.S. Treasury yields fell for the second consecutive week on the back of Fed Chair Powell’s comments and weaker-than-expected economic readings. The 10-year U.S. Treasury fell to 3.14%. Returns were mixed across the quality spectrum as longer duration high yield bonds were the best performing segment. Yields on investment grade corporate bonds and high yield corporate bonds moved slightly lower, finishing the week at 4.7% and 8.4%, respectively.

Macroeconomic Data

Economic data releases were largely disappointing in what was a relatively light week. Existing home sales fell 3.4% to a seasonally adjusted annual rate of 5.41 million in May, marking the fourth straight monthly decline. U.S. businesses suffered a sharp decline in June as high inflation has reduced demand. The S&P U.S. services index declined to a five-month low of 51.6 while the U.S. manufacturing index closed in on a two-year low of 52.4 in June. The final U.S. consumer sentiment index was revised unexpectantly to an all-time low of 50 in June as persistent inflation and record high gas prices have weighed on consumers. The 1-year U.S. inflation forecast was revised lower to 5.3% from 5.4%. U.K. inflation rose to a record 9.1% in May as food costs rose at the fastest rate in 13 years.

 

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Fears of Hard Landing Send S&P 500 into Bear Market Territory

Market Data as of Week Ending: 06/17/2022 unless noted otherwise

Equities

U.S. stock prices continued their downward trajectory as persistent inflation, central bank tightening, and higher yields sent markets lower. The S&P 500 officially entered bear market territory after recording its worst week since March 2020, returning -5.75%. The percentage of S&P 500 companies trading above their 50-day moving average fell below 5% last week, the lowest level since the beginning of the pandemic. In a reversal from last week, growth stocks held up better than value and larger companies generally outperformed their small company peers. All eleven S&P 500 sectors were solidly lower, with most declining between 4 to 6%. The energy sector was the worst performer, returning -17.10%, as oil prices experienced volatility on the back of supply concerns. Developed foreign and emerging market stocks narrowly outperformed the U.S.

Bonds

U.S. Treasury yields had a choppy week, briefly touching multi-year highs before a relief rally sent the 10-year treasury yield down to 3.23%. Higher-quality government bonds outperformed while shorter durations were able to provide value. Yields on investment grade corporate bonds and high yield corporate bonds were sent higher, finishing the week at 4.8% and 8.5%, respectively.

Macroeconomic Data

Economic data releases were relatively sluggish as the Federal Reserve’s rate decision loomed large. The NFIB small-business index was unchanged in May at 93.1 as expectations for future business conditions continued to deteriorate amid persisting inflation. U.S. retail sales fell for the first time in five months, declining 0.3% in May due to fewer auto purchases. The NAHM home builders index declined for the sixth month in a row and to a two year low of 67, reflecting growing pessimism as interest and mortgage rates climb. The Federal Reserve announced a 0.75% rate hike, the largest in three decades, as the Fed continues to be aggressive in combating inflation. The Philadelphia manufacturing index contracted for the first time since May 2020, falling to -3.3 in June from 2.6. The Bank of England raised its key interest rate by 0.25%, the fifth meeting in a row in which the BOE rose rates, as inflation recently reached 9.0% in the U.K.

 

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Markets Move Lower as Investors Grapple with Higher Inflation and Record Low Sentiment

Market Data as of Week Ending: 06/10/2022 unless noted otherwise

Equities

U.S. stock prices recorded another week of solid losses despite some early-week strength as market volatility continued. The S&P 500 returned -5.04% as markets turned south Thursday afternoon and into Friday as investors grappled with a hotter-than-expected inflation reading and upcoming monetary tightening in Europe. Value stocks were able to hold up better than growth and smaller companies generally outperformed their large company peers. The energy sector led the way again, posting only a minor loss on the week as oil prices climbed most of the week. Traditionally defensive sectors, consumer staples and health care, outperformed while financials, information technology, and consumer discretionary lagged. Developed foreign and emerging market stocks outperformed the U.S.

Bonds

U.S. Treasury yields increased as the price of government bonds decreased after Friday’s inflation reading, sending the 10-year treasury yield 0.22% higher to 3.16%. Higher-quality government bonds outperformed while credit sensitive bonds lagged. Among high quality investment grade bonds, those with shorter durations generally outperformed. Yields on investment grade corporate bonds and high yield corporate bonds jumped higher, and finished the week at 4.6% and 7.8%, respectively.

Macroeconomic Data

Economic data releases were sparse this week and were headlined by a hotter-than-expected consumer price index (CPI) reading. Rising rents, gas and food pushed May’s CPI up by 1.0%, bringing the year-over-year inflation rate to 8.6%, the highest reading in 40 years. The U.S. consumer credit rose to $38.1 billion, above consensus estimates and the third straight month of gains in consumer borrowing above $30 billion. U.S. unemployment claims increased by 27,000 to a five-month high of 229,000 during the first week of June, but appears to be linked to Memorial Day hiring. Consumer sentiment fell to a record low of 50.2 in the University of Michigan’s preliminary June reading as rising costs and expected monetary tightening has weighed on consumers. Japan’s government and central bank expressed concern as the sharp decline of the Yen has brought it to its lowest level in two decades versus the U.S. dollar.

 

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Stock Prices Decline on Investor Skepticism

Market Data as of Week Ending: 06/03/2022 unless noted otherwise

Equities

U.S. stock prices declined as investor sentiment shifted back toward skepticism around the Fed’s ability to restrain inflation. Now that the first quarter reporting cycle
has effectively ended, analyst expectations for the second quarter have come into focus. S&P 500 earnings are expected to grow by 4% for the second quarter
despite a nearly 10% growth in revenue. Growth stocks were able to outpace value and smaller companies generally outperformed their large company peers. It was
another solid week for the energy sector, one of only three sectors that delivered gains. Consumer discretionary and industrials were the other two sectors that edged
out a small gain while health care, real estate, and financials lagged. Developed foreign and emerging market stocks underperformed the U.S.

Bonds

Volatility picked up in the bond market as the 10-year treasury yield increased 0.20% and ended the week at 2.94%. Credit sensitive bonds outperformed while higherquality
government bonds lagged. Among high quality investment grade bonds, those with shorter durations generally outperformed. Yields on investment grade
corporate bonds and high yield corporate bonds narrowly edged higher, and finished the week at 4.3% and 7.3%, respectively.

Macroeconomic Data

Economic data releases were sparse this week and were headlined by a better-than-expected jobs report for the month of May. The U.S. added 390,000 jobs and the
unemployment rate remained unchanged at 3.6%. Job openings decreased from 11.9 million to 11.4 million. Those figures are aligned with Fed expectations given
tighter financial market conditions and recent interest rate hikes to help offset inflation. ISM reported that the manufacturing sector grew for the 24th consecutive
month in their PMI survey that increased to 56.1%. According to ISM, growth in the manufacturing sector remains challenged by excess demand in a supply-chain
constrained environment. Inflation in the European Union soared and reached a record high of 8.1%, putting more pressure on the ECB to begin raising short-term
interest rates.

 

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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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