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Stock Prices Declined as Investor Sentiment Shifts

Market Data as of Week Ending: 11/18/2022 unless noted otherwise

Equities

U.S. stock prices declined last week as investor sentiment shifted on mixed economic data. Third quarter earnings results were generally better than expected with 69% of S&P 500 companies reporting a positive earnings surprise and growth of just above 2%. However, according to FactSet, expectations for earnings growth in the fourth quarter have flipped from a gain of nearly 4% on September 30th to a decline of more than 2%. Value stocks rotated back into favor while large companies generally outperformed their small and mid-sized peers. Most of the major economic sectors ended the week lower, most notably, the consumer discretionary sector where mega cap stocks such as Amazon and Tesla struggled. Traditionally defensive sectors including utilities, consumer staples, and health care were the only sectors to generate gains for the week. Developed foreign and emerging markets stocks recorded gains again for the week and generally outperformed domestic
equities.

Bonds

U.S. Treasury yields were mixed across the curve as the difference between the 2-year and 10-year U.S. Treasury yield declined to its lowest level in over 40 years. The 10-year narrowly increased to end the week at 3.93% and the 2-year increased to 4.72%. Yields dropped for long duration bonds, and they significantly outperformed last week. Long investment grade corporate bonds were the best performing segment; however, high yield corporate bonds were the best performing segment among intermediate term bonds. Yields declined for both investment grade corporate and high yield bonds, ending the week at 5.5% and just above 8.8%,
respectively.

Macroeconomic Data

Economic data was mixed with notable strength in the retail sales report, a resilient labor market, and continued weakness in housing. Retail sales increased 1.3% in October, in a show of strength across a broad variety of goods and services despite nearly a four-decade-high inflation rate. After adjusting for inflation, sales still rose 0.8% and a core measure that excludes sales on gas, food, autos, and materials, also rose 0.7%. Demand for labor remains robust as the weekly initial jobless claims decreased by 4,000 to 222,000 and further complicates central bank policy decision making in December. Existing home sales declined for a ninth straight month in October, the longest streak of declines on record according to the National Association of Realtors. Peak inflation has not reached the U.K. as they reported a sharp increase of 11.1% in October, its highest level in more than 40 years.

 

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