This Week in Review 7/11/22

Last week was another positive week…

Equities climbed during the holiday-shortened week, allowing the Dow (+0.8%), S&P 500 (+1.9%), and Nasdaq (+4.6%) to reclaim the bulk of their losses from the previous week.

The market got off to a shaky start on Tuesday but recovered after finding support above lows from the previous week.

The Tuesday bounce opened the door to an extension of the rebound over the coming days with sectors like communication services, consumer discretionary, and technology leading the market higher.

The three groups gained a respective 4.9%, 4.6%, and 4.3%, distancing themselves from their mid-June lows.

Looking deeper in the tech sector, chipmakers were among the best performers with heavyweights like AMD and NVIDIA rising off their lowest levels in at least a year while the PHLX Semiconductor Index gained 6.5%, narrowing its year-to-date loss to 33.7%.

Crude oil faced pressure at the start of the week, falling past the $100.00/bbl mark to a level not seen since late April. Concerns about global growth fueled the selling on Monday and Tuesday, in turn emboldening the advance in the equity market. However, the next two days saw a bounce that lifted the energy component back above $100. WTI crude ended the week at $105.06/bbl, down $3.41 or 3.1% since last Friday.

The Holiday shortened week featured the release of the June FOMC Minutes, in which policymakers acknowledged the risk for a slowdown in growth from tighter policy and a concern that higher inflation could become entrenched if the public begins questioning the Fed's resolve. Policymakers agreed that moving to a restrictive policy stance is appropriate.

Treasuries gave back the bulk of their gains from the week before, lifting the 10-yr yield back above its 50-day moving average (3.003%). The benchmark yield increased by 21 bps to 3.10% for the week while the 2-yr yield rose 29 bps to 3.12%, inverting the 2s10s spread once again.

The U.S. Dollar Index climbed nearly 1.8% during the past week, reaching a level not seen since October 2002. The bulk of the strength took place at the euro's expense amid ongoing concerns about the impact of high energy prices on the European economy.

Market Update…

• Oil Prices –West Texas Intermediate crude was up $2.06 or 2% to settle at $104.79/barrel while Brent crude rose $2.37, or 2.3%, to settle at $107.02/barrel.
• Gold – Gold declined a fourth straight week as the dollar ascended. Spot gold rose 0.2% to $1,742.3 per ounce, while U.S. gold futures were little changed at $1,740. per ounce. Silver finished the week at $19.236.
• U.S. Dollar – The dollar index was flat at $106.96 in choppy trading after payroll beat expectations. Euro/US$ exchange rate is now 1.02.
• U.S. Treasury Rates– The yield on 10-year Treasury note rose about six basis points to roughly 3.063%.
• Asian shares were mixed in overnight trading.
• European Markets are trading lower.
• Domestic markets are soft again this morning. 

We begin earnings season… 

The Q2 earnings season begins this week. Several companies are set to report including Pepsico, Delta Airlines, UnitedHealthcare, and JPMorgan…

These reports will be critical in seeing how companies are addressing inflation, how long they expect high inflation to persist, and what pass-through is being sent to their consumers. We’ve already seen several companies institute additional fees or price hikes to account for the increase in transportation or food costs.

The estimated earnings growth for the quarter is 4.1%. If this comes to fruition, it would be the lowest growth quarter since Q4 2020. It appears to be a low bar even among muted expectations.

We will start to see which companies are being well managed and adapting to present circumstances and which ones are struggling. The well-managed companies will come out the other side stronger and could very well be the leaders of the next bull market.

The markets have put in a higher low, which could indicate a change in the short-term trend. The long-term trend, however, will still depend largely on June’s CPI number being reported this Wednesday, and the Fed’s policy reaction at its meeting July 26-27. Current odds put the expected rate hike at 75 bps.

An upward surprise in the CPI report could change this as it did last month when the Fed decided to pivot and raise by 75 bps… instead of the expected 50 bps.

Our markets will continue to be volatile as we progress through the year. Large price swings are likely, and emotions could hamper judgment in the midst of all this volatility.

It is imperative that we continue to have a sound investment process and the discipline to stick with it.

Have a wonderful week!

Michael D. Hilger, CEP^®
Managing Director
Senior Vice President, Wealth Management