Weekly Market Performance – Markets Sell Off Sharply On Hawkish Powell Message
U.S. and International Equities
Markets Finish Lower
Markets pulled back sharply this week as the S&P 500 Index ended its streak of four straight weekly gains. Markets got an unwelcomed reminder from Federal Reserve (Fed) Chairman Powell in his speech at Jackson Hole that fighting inflation remains the central bank’s top priority and that rates may stay higher for longer than those calling for a quick pivot had anticipated.
Energy was the only winning sector this week as this segment of the economy continues to enjoy positive fundamentals amid attractive market valuations. LPL Research maintains a positive stance on this sector. You can read more of our thoughts concerning energy through our blog post titled 5 Reasons to Consider Buying Energy.
Fixed Income Lower
The Bloomberg Aggregate Bond Index finished the week lower along with high-yield corporate bonds, as tracked by the Bloomberg High Yield index. Bonds lost ground as investors reassess the direction of rates given hawkish comments from the Fed today.
Amid continued energy supply concerns in Europe from the Eastern European conflict, natural gas finished in the green this week. U.S. natural gas prices are near their highest level in 15 years, up over 150% year-to-date. The metals had a tepid performance this week as global demand is a concern amid the softening economic landscape in China and Europe.
Economic Weekly Roundup
The headline Personal Consumption Expenditure (PCE) deflator fell 0.1% in July, the first decline seen since the onset of the pandemic. Meanwhile, real personal spending rose 0.2%, which is a positive indicator for Q3 economic growth. The July savings rate was 5%, unchanged from the previous month. The stock of savings is still high and continues to buffer consumers from ongoing price pressures.
Eurozone Composite PMI declined for a second consecutive month, driven by a decline in new orders and elevated cost of living. German Composite PMI declined again and reached a 26-month low. The weak data point coincides with the euro breaking parity and trading at a two-decade low relative to the U.S. dollar. Weak economic indicators continue to compound as the European Central Bank (ECB) is set to raise rates next month.
China Lowered Key Interest Rates
The People’s Bank of China (PBOC) reduced the prime rates for both one and five-year loans in an attempt to strengthen demand for credit and stimulate the economy. Similar actions were taken last week by the PBOC when they reduced the seven-day reverse repo rate and the one-year medium-term lending facility. Reducing rates that are tied to the Chinese property market should provide liquidity but doesn’t address the zero-COVID policy, a significant headwind for the economy.
Weekly Employment Report
Initial claims for unemployment insurance for the latest week came in just below the prior week and surpassed economists’ expectations. Continuing claims also declined from the prior week and surpassed economists’ forecasts. Labor market conditions remain tight even though there are signs of slowing job growth, increasing layoffs, and fewer job openings.
The following economic data and potentially market-moving events are slated for the week ahead:
Tuesday: S&P/Case-Shiller Composite Home Price Index (Jun), Consumer Confidence (Aug), JOLTS Job Openings (Jul)
Wednesday: ADP Employment Survey (Aug)
Thursday: Weekly initial and continuing unemployment claims, Markit PMI Manufacturing (Aug), ISM Manufacturing (Aug), construction spending (Jul), unit labor costs and productivity (Q2)
Friday: hourly earnings, manufacturing and non-farm payrolls (Aug), durable and factory orders (Jul), unemployment report (Aug)
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