The Week in Review 9/6/22

"I'm just opposed to a pure inflation-only mandate in which the only thing a central bank cares about is inflation and not employment." - Janet Yellen

Last week concluded the end of August and the beginning of September.
Both looked roughly the same, which is to say sellers were plentiful.

Stocks sold off Monday, Tuesday, and Wednesday. In doing so, the S&P 500 closed the month of August with a 4.2% loss. The Nasdaq Composite for its part was down all three days, too, and closed August with a 4.6% loss.

Thursday went marginally better for the S&P 500 and Dow Jones Industrial Average, but the Nasdaq extended its losing streak to five sessions on Thursday. That streak extended to six sessions on Friday after some concerning Nord Stream 1 pipeline news undercut a rebound effort that had been underway following an August employment report that was less strong than the July employment report.

The August employment report, however, was not weak. There were 315,000 jobs added to nonfarm payrolls, average hourly earnings were up 5.2% year-over-year, unchanged from July, and the unemployment rate ticked up to 3.7% (from 3.5%) on a higher participation rate. Nonetheless, there was a burgeoning belief after the report that it could compel the Fed to take a less aggressive rate-hike path at its September meeting.

The positive bias following that report was undone, however, when Bloomberg TV reported that Gazprom is going to keep the Nord Stream 1 pipeline shut down due to a "technical issue" that involves an oil leak. There was no timetable provided for when the pipeline might be reopened. That decision came shortly after G7 members agreed to implement a price cap on exports of Russian oil.

For the week, the major indices registered losses between 3.0-4.7% and the third straight losing week. The S&P 500, which kissed 4,325 on August 16, came within a hair of 3,900 before closing the week at 3,924.

The catalyst for a lot of the selling interest was a fear of the Fed that carried over from Fed Chair Powell's tough-minded policy speech in Jackson Hole. Cleveland Fed President Mester (FOMC voter) stoked that fear with an acknowledgment that she thinks the fed funds rate should be somewhat above 4.00% by early next year and that she does not anticipate there being a rate cut in 2023.

Her view was another reality check for the market that the Fed is not interested in being the market's friend right now. Instead, its aim is to be the enemy of inflation with rising interest rates and a reduction of its balance sheet. That approach is likely to have adverse consequences for economic growth and will diminish earnings prospects.

That understanding has contributed once again to an inclination to sell into strength, which was present throughout the week along with rising Treasury yields and a strong dollar (the yen hit a 24-year low against the greenback and the euro fell below parity at 1.00).

Growth concerns were very much in the mix. Copper futures declined 7.9% this week to $3.40/lb and oil futures fell 6.4% to $87.09/bbl. They were driven lower partly by demand concerns that percolated after Chinese city Chengdu (21.2 million residents) was locked down for Covid testing. The materials sector (-5.0%) was the worst-performing sector this week along with information technology (-5.0%).

The latter was undercut by losses in its mega-cap components and a dismal showing from the semiconductor stocks, which got sideswiped by the news that the U.S. government informed NVIDIA that it is imposing a new license requirement for sales of its A100 and H100 chips to China and Russia. The Philadelphia Semiconductor Index declined 7.1%.

All 11 S&P 500 sectors finished lower for the week with losses ranging from 1.6% to 5.0%. The defensive-oriented utilities sector was the "best-performing" sector. Growth stocks saw the biggest hit this week with the jump in long-term rates, but value stocks also saw their fair share of selling. 

The 2-yr note yield slipped one basis point for the week to 3.40% but the 10-yr note yield jumped 16 basis points to 3.20%.

September is underway, and is so far living up to its reputation as the last of the 6 worst months of the investment year… October begins the best 6 months, as history goes.

Have a great holiday shortened week!

The opinions expressed herein are those of Michael Hilger and not necessarily those of Raymond James & Associates, Inc., and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forcasts will occur.  The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

The information contained herein is general in nature and does not constitute legal or tax advice.  Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. The Dow Jones Industrial Average (INDU) is the most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials. The Dow Jones Transportation Average (DJTA, also called the "Dow Jones Transports") is a U.S. stock market index from the Dow Jones Indices of the transportation sector, and is the most widely recognized gauge of the American transportation sector.  Standard & Poor's 500 (SPX) is a basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value, and its performance is thought to be representative of the stock market as a whole.   The NASDAQ Composite Index (COMP.Q) is an index that indicates price movements of securities in the over-the-counter market. It includes all domestic common stocks in the NASDAQ System (approximately 5,000 stocks) and is weighted according to the market value of each listed issue. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. 

Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.

International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

The companies engaged in the communications and technology industries are subject to fierce competition and their products and services may be subject to rapid obsolescence.

Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.

The information contained within this commercial email has been obtained from sources considered reliable, but we do not guarantee the foregoing material is accurate or complete.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making an investment decision, please consult with your financial advisor about your individual situation. 

Charts are reprinted with permission, further reproduction is strictly prohibited.