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Markets Close Out September Lower as Inflation Weighs

Market Data as of Week Ending: 09/30/2022 unless noted otherwise

Equities

U.S. stock prices continued their slide lower as investors grappled with turmoil in UK financial markets and inflation data that paved the way for the Fed to continue their hawkish monetary policy. As growing concerns that the volatility and swings in interest rates will lead to a “financial accident”, the Bank of England (BOE) intervened on Wednesday to buy UK government bonds to stabilize market conditions. Small companies generally outperformed their mid and large-sized peers, while the valuation factor had mixed results, depending on size. Ten of the eleven major sectors in the S&P 500 dropped with declines being broad based across sector type. Energy was the only sector to record a gain as oil prices rose for the first time in five weeks as OPEC+ is said to be considering output cuts ahead of their meeting. Developed foreign and emerging stock prices declined with mixed results relative to the U.S. as currency markets saw further volatility.

Bonds

U.S. Treasury yields experienced volatile trading last week before advancing again. The 10-year U.S. Treasury ended the week at 3.83%, after reaching a 14-year high midweek before declining 0.25% after the BOE’s announcement, while the 2-year yield increased by 0.07% to 4.28%. Longer duration bonds experienced the steepest declines for yet another week while higher quality bonds mostly outperformed. High yield corporate bonds continue to see negative flows, as the asset class saw higher-than-average volume during the week. Yields on investment grade and high yield corporate bonds rose, finishing the week at 5.7% and 9.7%, respectively.

Macroeconomic Data

It was a mixed week for economic data releases as the bulk of the releases came at the end of the week as investors awaited new inflation data. Durable goods orders at U.S. factories fell 0.2% in August as they saw lower demand for large airplanes but business spending showed surprising strength, rising 1.3%. U.S. pending-home sales fell 2% in August, marking the third straight month of declines as rising mortgage rates have deterred potential buyers. U.S. PCE rose 0.3% in August as the sharp decline in gas prices helped offset rising costs while core PCE, which omits food and energy costs, rose by a higher than anticipated 0.6%. Consumer spending rose by 0.4% in August, but only a mere 0.1% after inflation, as consumers have tampered their spending as cost-of-living increases. The University of Michigan consumer sentiment index rose to 58.2 in August as falling gas prices, rising wages and the strong labor market has provided a slight boost to their outlook.

 

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