Economic Update 8-22-2022
- Economic data for the week included strength in industrial production, little change in retail sales, and mixed results from several regional manufacturing surveys. Housing data also continued a string of weak monthly reports.
- Stock markets fell back globally, with U.S. equities faring a bit better than Europe and Asia, and inflation remaining top of mind. Bonds fell back due to rising interest rates across the yield curve, with foreign bonds negatively affected by a continued strong U.S. dollar. Commodities fell back broadly, with the exception of natural gas, buoyed by hot weather and geopolitical constraints.
U.S. stocks fell back, reversing some positivity from the prior week as more hawkish Fed member rhetoric pointed to inflation still posing a significant threat. By sector, defensive consumer staples and utilities led the way, as did energy, each with small gains. Communications and materials lagged the most, with declines of at least 2%, with the former brought down by Meta Platforms/Facebook. Real estate was also down around -2%, being stymied by higher interest rates.
Foreign stocks fell back to a greater degree, due to a stronger dollar, and continued high inflation readings in Europe. Central bankers were far dourer in their assessments than with the U.S. Fed. Inflation in the U.K. over 10% was reported, which represented another 40-year high. China continued to buck the trend of other key global nations, by lowering interest rates last week and injecting other stimulus measures. It was by a modest 0.10%, but was a continuation of a desired soft landing of their own, with weakness from Covid lockdowns on one side, countered by attempts to avoid damage from real estate speculation and boycotts from mortgage payers. The Chinese young adult male jobless rate has reached an all-time high (of nearly 20%), which causes any nation concern.
U.S. bonds lost ground last week as interest rates again ticked higher. Treasuries outperformed corporates slightly, as credit spreads widened, particularly in high yield. Foreign bonds were held back again by another 2+% rise in the value of the U.S. dollar, which negatively affected both developed and emerging markets.
Commodities generally fell back a bit last week, with small gains in energy offset by price declines in agriculture, industrial metals, and precious metals. The price of crude oil fell by nearly -2% to end at $90/barrel. However, hot weather, in the triple-digits in many locations, helped push natural gas prices higher again by 6% due to air conditioning demand. This was in addition to the ongoing supply disruptions in Europe, although U.S. and European gas markets are priced distinctly due to the difficulty in arbitraging discrepancies because of gas’s lack of easy portability.
|Period ending 8/19/2022||1 Week (%)||YTD (%)|
|Bloomberg U.S. Aggregate||-0.89||-9.70|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.