U.S. and International Equities
Markets Finish the Week Lower
Stocks finished the week lower after last week’s nearly 6% increase for the S&P 500 Index. Mixed retail earnings amid consumer financial health concerns, in addition to some pointed “Fedspeak” have influenced this week’s market results. U.S. mortgage rates recorded their biggest weekly decline since 1981, as a rapid increase in rates this year has quickly priced out many potential homebuyers.
The London Stock Exchange narrowly relinquished its position as Europe’s most valuable stock market to Paris on the back of a weak pound and U.K. recession fears. France’s luxury good makers, such as LVMH (Louis Vuitton) and Hermes, are witnessing surging sales this year amid the global inflationary landscape.
Fixed Income Mostly Higher – as Yields Fall
The Bloomberg Aggregate Bond Index finished the week higher as yields continue to decline on expectations of a less aggressive Fed, following on from last week’s inflation report and this week’s Fedspeak. Markets have embraced a downshift in Fed rate hikes, with a fifth consecutive 75 bps hike next month no longer the consensus. In addition, high-yield corporate bonds, as tracked by the Bloomberg High Yield index, gained ground for the week.
Demand for high yield exposure spiked last week following the cooler-than-expected inflation print. Two of the largest high yield bond ETFs each had over $2B of inflows in a single day last week—the largest single day inflows on record. We think an allocation to high yield bonds could make sense for investors who can stomach the potential for higher near-term volatility.
Oil and natural gas prices finished the week mixed. We expect natural gas prices to see increased volatility for the rest of 2022 and into 2023 over concerns about reduced supplies given the Eastern European crisis, in addition to increased European and North American seasonal demand as we head into the winter months.
Gold, silver, and copper all finished lower in a rough year so far for the metals. Global demand concerns continue to contribute to a decline in copper prices this year even as the metal finished positive for the rolling one month period.
Economic Weekly Roundup
U.K. inflation increased to a 41-year high of 11.1% in October. This exceeded economists’ expectations as food, transport and energy prices continued to squeeze households and businesses. Unlike the U.S., unfortunately, inflation is not likely near peak.
U.S. Retail Sales
U.S. retail sales rose sharply in October, a sign of economic and consumer strength that will, most likely, cause the Federal Reserve to maintain its hawkish lean on interest rates as it tries to reduce persistently high inflation. Retail sales rose a seasonally adjusted 1.3% in October compared with September, which were unchanged the month prior.
U.S. Producer Prices
U.S. producer prices moderated in October, yet another metric showing inflation pressures are easing. Producer costs for passenger cars fell the most since May 2017, as supply chains improved within a sector beleaguered with shortages since the onset of the global pandemic. Costs associated with transportation and warehousing declined from a month ago for the fourth consecutive month, likely a consequence of the improved global shipping environment.
Weekly Employment Report
Continuing and initial claims for unemployment insurance for the latest week came in just above economists’ expectations. Labor market conditions remain tight even though there are some signs of slowing job growth, increasing layoffs, and higher unemployment.
The following economic data and potentially market-moving events are slated for the holiday-shortened week ahead:
Wednesday: Weekly initial and continuing unemployment claims, building permits (Oct), durable orders (Oct), PMI Composite (Nov), S&P Global PMI Manufacturing and Services (Nov), University of Michigan Sentiment (Nov), New Home Sales (Oct), FOMC minutes
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