U.S. and International Equities
Markets Finish Mostly Higher
The S&P 500 Index finished higher during the shortened trading week, led by the utilities and materials sectors. In addition, the financials and consumer staples sectors had a positive week and also outperformed the market average. The energy sector lagged all other sectors this week as oil prices (West Texas Intermediate) were down over 4% for the week and over 10% for the rolling one month period. Emerging markets finished the week lower as COVID-19 cases jumped in China, causing the government to continue lockdowns and mass testing.
With the majority of the S&P 500 Index having reported results, Q3 earnings are tracking to a 2.3% year-over-year increase, in line with estimates at quarter end. Revenue growth for the quarter inched higher over the past week to 10.9% and is tracking 2.4 percentage points ahead of September 30 estimates. With reporting season almost over, earnings growth for the quarter will likely end up shy of 3%. The lack of upside is disappointing but easily explained by intense cost pressures, a slowing economy, and strong U.S. dollar.
Fixed Income Higher – as Yields Fall
The Bloomberg Aggregate Bond Index finished the week higher as yields continue to decline on expectations of a less aggressive Federal Reserve, following on from last week’s inflation report and continued 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.
October included the most downgraded bond issuers (26) and the fewest number of upgrades (14) since late 2020. October was the also the first month bond upgrades failed to exceed downgrades since December 2020. By industry, healthcare (22) and tech (17) have produced the most downgrades YTD.
According to the Commodity Futures Trading Commission (CFTC), which tracks Treasury positioning, speculative positioning for Treasury securities remains at the most net short since 2008. Any sustained rally in Treasury securities could cause these positions to reverse, which would likely provide a tailwind to Treasury prices.
Oil and natural gas prices finished the week mixed for the second consecutive week. 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 and silver both finished higher, whereas copper finished the week lower.
Economic Weekly Roundup
This week, San Francisco Fed President Mary Daly highlighted that the economy has not likely felt the full effects of this year’s rate hikes. The macroeconomic environment will likely call for a 0.50% increase in fed funds rate at the Fed’s next meeting, as inflation is cooling and the Fed can legitimately downshift its rate hikes to something other than 0.75% increments.
Federal Reserve officials expect to switch to smaller interest rate increases “soon,” according to minutes from the November meeting released this Wednesday. Some Federal Reserve officials expressed concern over the impact this year’s rate increases may have on financial stability as well as the economic landscape.
Weekly Employment Report
Continuing and initial claims for unemployment insurance for the latest week came in 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 week ahead:
- Tuesday: BEA Total Light Vehicle Sales (Oct), FHFA Home Price Index (Sep), Consumer Confidence (Nov), S&P Case-Shiller Home Price Index (Sep)
- Wednesday: ADP Employment Survey (Nov), Q3 GDP, wholesale inventories, JOLTS Job Openings (Oct), pending home sales (Oct), Federal Reserve Beige Book
- Thursday: Weekly initial and continuing unemployment claims, personal consumption expenditures (Oct), PCE deflator (Oct), Core PCE deflator (Oct), ISM Manufacturing (Nov), construction spending (Oct), S&P Global PMI Manufacturing (Nov), personal income (Oct)
- Friday: Hourly earnings (Nov), average workweek (Nov), manufacturing payrolls (Nov), nonfarm payrolls (Nov), private nonfarm payrolls (Nov), unemployment report (Nov)
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. For more information on the risks associated with the strategies and product types discussed please visit https://lplresearch.com/Risks
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Securities and advisory services offered through LPL Financial, a registered investment advisor and broker-dealer. Member FINRA/SIPC.
For Public Use Tracking 1-05345003
For a complete list of descriptions of the indexes and economic terms referenced in this publication, please visit our website at lplresearch.com/definitions