U.S. and International Equities
U.S. Markets Finish Higher
The U.S. major market indexes finished higher this week as growth names outperformed value given solid gains from the growth-heavy consumer discretionary and technology sectors. Meanwhile, the first big batch of second quarter earnings results this week were not as weak as some analysts had feared. Some very strong breadth readings during the latest leg of the rally, ultra-bearish sentiment highlighted in the latest Bank of America Global Fund Manager Survey, and signs of cooling inflation likely helped entice some buyers to come back into the market.
Softening commodity price pressures along with improving supply chains could be leading some investors to witness the potential for an improvement in the corporate profit landscape. Amid inflation, slowing economic growth, China’s COVID-19 lockdowns, along with the geopolitical crisis in Eastern Europe, both developed international stocks (MSCI EAFE) and emerging markets (MSCI EM) finished the week higher.
Fixed Income Higher
The Bloomberg Aggregate Bond Index finished higher this week as the 10-year U.S Treasury bond yield fell solidly below the 3% level to just below 2.80%, as bond investors price in slower economic growth and a belief inflation pressures will moderate. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, gained ground following a solid week for equities.
Natural Gas Prices Show Solid Global Demand
Natural gas prices increased sharply for the third straight week, partly due to the heat wave sweeping the U.S. Moreover, supply challenges in Europe caused natural gas prices to increase as future Russian supplies appear to be in question. The major metals, gold, silver, and copper, were mixed this week.
Economic Weekly Roundup
ECB Raises Rates
The European Central Bank (ECB) surprised market participants this week by increasing rates by 50 basis points, more than the 25 basis points many had anticipated and the ECB’s first rate hike in 11 years. ECB President Lagarde justified the larger hike given the present inflationary climate. She also noted that the most recent data suggesting a slowdown in growth “clouds the outlook” for later rate hikes this year.
June Leading Economic Index
The June Conference Board Leading Economic Index (LEI) declined by 0.8%, which was more than economists expected. The LEI has now declined for a fourth consecutive month. Over the first half of this year, the LEI dropped by just under 2%. For the second half of 2021, the LEI grew over 3%. The report suggests that U.S. economic growth is likely to slow in the next couple months and recession risk has risen.
Weekly Employment Report
Initial claims for unemployment insurance for the latest week came in higher than the prior week and missed economists’ expectations. The readings still remain historically low despite the recent uptick. Continuing claims, which still remain near record lows, increased from the prior week and missed economists’ consensus estimates. The data still continues to illustrate a very tight, but softening, labor market as economic growth slows and financial conditions tighten.
The following economic data and potentially market-moving events are slated for the week ahead:
- Tuesday: Consumer confidence, new home sales (July), FHFA Home Price Index (May), S&P/Case-Shiller Home Price Index (May), new home sales (June), building permits (June)
- Wednesday: BEA domestic auto sales, durable orders, wholesale inventories, pending home sales (June), FOMC meeting
- Thursday: Weekly initial and continuing unemployment claims, Q2 GDP
- Friday: Personal consumption expenditures, personal income, employment cost index (Q2), University of Michigan consumer sentiment (July)
Next week, 175 companies report their Q2 earning results
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