Inflation Deflates Markets
Stocks suffered their worst day in more than two years last Tuesday as markets were caught off-guard by a higher-than-anticipated August inflation report.
Markets expected the August report to show a substantial cooling of inflation, potentially allowing the Fed to ease up on interest rate hikes. Instead, the elevated inflation number not only undercut those easing hopes but raised the possibility of a more significant rate hike. On Tuesday, traders assigned a 28% probability of a 100 basis point hike, from a 0% chance just the day before. Price action remained choppy for the remainder of the week, closing the week with additional losses as a global package-delivery company warned of a worldwide recession.4
4. The Wall Street Journal, September 13, 2022
U.S. equities were negative, with the S&P 500 Index down -4.73%.
Domestically, smaller-sized companies outperformed their larger counterparts as the Russell 2000 index declined -4.46% on the week.
International stocks also decreased but outperformed domestic stocks, with MSCI EAFE down -2.72%%.
Emerging market stocks were negative, with the MSCI EM index down -2.64%.
U.S. investment grade bonds were negative as Bloomberg Barclays U.S. Aggregate Bond index was down -0.93% for the week.
Mortgage Rates - Mortgage rates jumped again, surpassing the 6% mark, and reaching the highest level since the fall of 2008. The 30-year fixed-rate mortgage averaged 6.02% in the week ending September 15, up from 5.89% the week before, according to Freddie Mac. That is significantly higher than this time last year, when it was 2.86%.2
Earnings Estimates - Overall, there are 10,616 ratings on stocks in the S&P 500. Of these ratings, 55.6% are Buy ratings, 38.7% are Hold ratings, and 5.7% are Sell ratings. The percentage of Buy ratings is above the 5-year (month-end) average of 53.6%, while the percentages of Hold and Sell ratings are below their 5-year (month-end) averages of 40.4% and 6.0%.3
Supply Chain Pressures Abating - From the beginning of January 2022 to today, the container cost rate from China to the U.S. West Coast has come down 63%. Costs use to be about $14,000 and now sit at $5,250. On the East Coast, costs have come down 42% from a high of $16,000 in January to $9215 today. Similarly, A record 109 bottlenecked ships were documented by the Marine Exchange of Southern California & Vessel Traffic Service in Los Angeles and Long Beach in January 2022. As of last Monday, that ship count sat at eight—an all-time low.4
The Hidden Cost of COVID - Average math scores for 9-year-old US students fell 7 points from 2020 to 2022, the first statistically significant decline since long-term trend assessments began in the 1970s. Reading scores fell 5 points during the same period, the sharpest decline since 1990.5
1 Data Obtained from Bloomberg as 09/16/2022
Producer Prices - PPI (headline and core): Producer prices (output) are a measure of the change in the price of goods as they leave their place of production (i.e. prices received by domestic producers for their outputs either on the domestic or foreign market).
CPI (headline and core): Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.
Building Permits: This concept tracks the number of permits that have been issued for new construction, additions to pre-existing structures or major renovations. These statistics are based on the number of construction permits approved.
Housing Starts: Housing (or building) starts track the number of new housing units (or buildings) that have been started during the reference period.
Retail Sales: Retail sales (also referred to as retail trade) tracks the resale of new and used goods to the general public, for personal or household consumption. This concept is based on the value of goods sold.
S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.
Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as
MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.
MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
Bloomberg Barclays US Agg Bond: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg Barclays High Yield Corp: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition,
Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
Bloomberg Barclays Municipal Bond Index: The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.
Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.
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9/16 Market View Weekly: By the Numbers
September 22, 2022|