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Bond Yields Increase as Inflation Remains Elevated

Market Data as of Week Ending: 09/16/2022 unless noted otherwise

Equities

U.S. stock prices fell as the S&P 500 recorded its largest weekly decline of the quarter. Despite improving consumer sentiment, investors were disappointed that the CPI report was higher than expected, increasing the risk that “peak inflation” may not be behind us. Value stocks outperformed their growth counterparts across the board while small and mid-sized companies generally outperformed their large peers. All eleven major economic sectors in the S&P 500 dropped with nearly half of sectors down more than 6%. Energy stocks provided the best downside protection for the week followed by the consumer staples and utilities sectors. Traditionally cyclical sectors such as industrials and materials along with economic growth-oriented sectors, such as information technology and communication services, were among the most notable laggards. Developed foreign and emerging stock prices declined but outperformed the U.S. for the week.

Bonds

U.S. Treasury yields advanced again as the 10-year U.S. Treasury ended the week at 3.45% and the 2-year increased to 3.80%. Despite higher yield changes in the short end of the curve, longer duration bonds experienced the steepest declines and higher quality bonds outperformed. High yield corporate bonds lagged as investors have started to become more concerned about the riskiest segment of the bond market. Yields on investment grade and high yield corporate bonds rose, finishing the week at 5.1% and 8.8%, respectively.

Macroeconomic Data

There were several key economic releases during the week. However, in advance of the Fed meeting, all eyes were focused on the August CPI report. Prices only increased 0.1% in August but the core index, excluding the more volatile energy and food, increased 0.6%. The 12-month change in prices remains elevated at 8.3% and 6.3% respectively. The increase in core prices was broad based with notable increases in shelter, medical care, household furnishings, and new vehicles. Retail sales rebounded in August with a gain of 0.3% after a decline of 0.4% in the prior month. On the employment front, weekly jobless claims dropped for the fifth consecutive week to 213,000. Inflation remains a global problem as the ECB recently increased rates 0.75% and the UK reported that inflation over the past year was just below 10% in August.

 

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