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Markets Start the Fourth Quarter on a Positive, but Volatile Foot

Market Data as of Week Ending: 10/07/2022 unless noted otherwise

Equities

U.S. stock prices started off the new month and quarter on a positive, but volatile, foot. The markets experienced a broad rally early in the week off renewed hopes of a sooner-than-expected Fed softening, before attempting to give it all back on the heels of the September employment report. Continuing its trend, mid and small-cap companies generally outperformed their large-sized peers, while the valuation factor had mixed results depending on size. The energy sector outpaced the other ten sectors by a wide margin as oil prices surged off the news of OPEC+ agreeing to cut production by 2 million barrels per day. Real estate, utilities and the consumer centric sectors underperformed, posting negative returns for the week. Developed foreign and emerging stock prices moved higher, outperforming the U.S.

Bonds

U.S. Treasury yields rose yet again in what was another volatile week in the bond market. The 10-year U.S. Treasury ended the week at 3.88%, while the 2-year yield increased by 0.03% to 4.31% as slowing U.S. manufacturing data renewed growth concerns. Longer duration bonds experienced a mixed week depending on quality. High yield corporate bonds were the best performing asset class, recording a gain across all durations as its yield declined from 9.7% to 9.3%. Yields on investment grade corporate bonds remained flat, finishing the week at 5.7%.

Macroeconomic Data

It was a mixed week for economic data releases as Friday’s employment report remained at the forefront of many investors’ minds. The ISM manufacturing index fell to 50.9% in September, its lowest level since the spring of 2020 as new orders have declined and manufacturers aren’t hiring as many workers. U.S. job openings fell sharply in August to a 13-month low of 10.1 million, marking the fourth decline in five months, signaling the red-hot labor market may be beginning to cool. U.S. factory orders were flat in August, which was in line with expectations. The ISM services index slid to 56.7% in September, in line with estimates, as continued hiring offset slowing sales. The U.S. added 236,000 jobs in September, the smallest month-over-month increase since April 2021, but still strong historically and potentially stronger than the Fed would like. The unemployment rate dropped to 3.5% from 3.7%, marking one of the lowest rates since the late 1960s. The new U.K. government announced plans to implement tax cuts and spending increases funded by increased borrowing.

 

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