Author: Wendy Huang

Wendy Huang

Financial News and Portfolio Management Discussion through November 19th

The stock market edged lower last week as it digested a crosscurrent of conflicting economic data and contrasting comments from Fed officials. The Dow Jones Industrial Average was flat (-0.01%), while the Standard & Poor’s 500 declined by 0.69%. The Nasdaq Composite index lost 1.57% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 0.88%.1,2,3

Stocks took a spill after Fed officials’ comments cast uncertainty about future rate hikes. The more hawkish comments soured investor hopes of an imminent easing in Fed rate hikes, a prospect that had helped fuel the market rally the previous week. Concerns over the hawkish comments raised investor worries over recession risks, anxiety exacerbated by weak housing data and layoff announcements from major technology companies. The economic picture, however, included some encouraging news as retail sales rose and producer price increases moderated.

The Producer Price Index (PPI), which reflects the costs paid by domestic producers, seen as an indicator of future consumer prices, is not typically a market-moving event. That was not the case last week. October’s PPI rose a modest 0.2%, well below the 0.4% consensus estimate. The year-over-year increase moderated to 8.0%, compared to 8.4% in September and the peak of 11.7% in March. The eye-catching element may have been the 0.1% service decline, representing the first decline since November 2020. Excluding food and energy, the PPI was flat for the month and up 6.7% from a year ago.4

1. The Wall Street Journal, November 18, 2022 2. The Wall Street Journal, November 18, 2022 3. The Wall Street Journal, November 18, 2022 4. CNBC, November 15, 2022

Financial News and Portfolio Management Discussion through November 12th

A cooling inflation number ignited a powerful rally on Thursday, sending stocks to strong gains for the week. The Dow Jones Industrial Average gained 4.15%, while the Standard & Poor’s 500 added 5.90%. The Nasdaq Composite index rose 8.10% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, picked up 5.72%.1,2,3

A lower-than-expected inflation report triggered the biggest one-day stock market gain in more than two years as the news raised investors’ hopes that the Fed might consider easing the pace of future rate hikes. The day’s gains were pronounced in the hard-hit technology sector, as the tech-heavy Nasdaq added 7.35%.4 Stocks initially rallied to start the week but gave up some of the gains on Wednesday following a muddy and indecisive outcome to the midterms. Friday saw stocks build on their gains to close out an exceptional week.

Consumer prices rose slower in October, increasing 0.4% for the month and 7.7% from 12 months ago. Both numbers were below market expectations of 0.6% and 7.9%. The core CPI (excludes energy and food sectors) rose a more modest 0.3% on a monthly basis and 6.3% from a year ago.5 The deceleration in prices was mainly attributable to price declines in used cars (-2.4%), apparel (-0.7%), and medical care services (-0.6%). Despite the progress, inflation remains well above the Fed’s 2% target rate. A look behind the numbers shows that October’s 7.7% CPI was fueled by the largest monthly jump in shelter costs since 1990 (+0.8%). Shelter costs account for one-third of the CPI. Energy was up 1.8%, while food costs rose 0.6% for the month.6

1. The Wall Street Journal, November 11, 2022 2. The Wall Street Journal, November 11, 2022 3. The Wall Street Journal, November 11, 2022 4. CNBC, November 10, 2022 5. CNBC, November 10, 2022 6. CNBC, November 10, 2022

October Market Commentary

Market Commentary

US stocks sharply rebounded in October as investors looked for signs that the Federal Reserve might soon slow the pace of its interest-rate increases. As of the end of October, 85% of S&P 500 companies posted earnings and 70% reported earnings above estimates, which is below the 5-year average of 77% and below the 10-year average of 73%. Economic news was mixed over the month. Job growth slowed in September, with US employers adding 263,000 jobs, below the 275,000 estimate and the 315,000 added in August. The unemployment rate fell to 3.5%, below the 3.7% estimated. The producer-price index increased by 8.5% annually in September, which was a slight deceleration from the 8.7% in August. CPI increased by 8.2% in September, slightly above the expected 8.1%, down from 8.3% in August and 9.1% in June, which was the highest inflation rate in four decades. Core CPI, which excludes food and energy, rose by 6.6% in September above the 6.5% estimate. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 6.2% in September, the same as in August. The U.S. economy grew in the third quarter but showed signs of a broad slowdown. US GDP grew, after declining in the first half of the year, at a 2.6% annual rate in the third quarter. Sales of existing homes in the US fell for the eighth straight month in September, the longest streak of declines in over 15 years, as higher mortgage rates continue to cool the housing market.

Foreign stocks also rebounded in October amidst hopes that rising recession risk would cause central banks to change course. The Bank of England was forced to step in and buy longer-term bonds to calm the British bond and currency markets after newly elected government officials introduced policies that were counter to the BOE’s attempts to reduce inflation. The U.K government reversed course, forcing U.K. Prime Minister Truss to resign after just six weeks on the job. UK inflation rose 10.1% in September, slightly higher than the 10% estimate. The European Central Bank (ECB) raised interest rates by 0.75% to 1.5%, the highest level in more than a decade, but signaled mounting concerns about economic growth. The Eurozone’s headline inflation rate hit 9.9% in September, up from 9.1% in August. China’s GDP grew by 3.9% in the third quarter, above the 0.4% increase in the second quarter and the 3.4% estimate. Oil prices moved higher in October ending the month at $88.37 per barrel, up from $79.49 to end September. Developed markets topped emerging markets over October, the year to date, and trailing year.

Interest rates increased in October as bond markets price in the future rate increases of the world’s central banks. The Federal Reserve is likely to raise its key rate by 0.75% for the fourth consecutive time at the November meeting. Some officials have signaled the desire to both slow down the pace of increases and to stop raising rates early next year to see how their moves are slowing the economy. The yield on the 10-year Treasury increased in October ending at 4.07% up from 3.83% at the end of September. The rate for a 30-year fixed-rate mortgage topped 7% for the first time in 20 years. US agency bonds were the top performer for October and the year to date and shorter-term bonds outpaced longer-term bonds for October and the year to date.

 

Index PerformanceOctoberYear to DateTrailing 12 Months
US Stocks (Russell 3000)8.20%-18.44%-16.52%
Foreign Stocks (FTSE AW ex US)2.93%-23.69%-23.96%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-0.44%-10.02%-10.03%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-0.26%-7.96%-7.53%
Cash (ICE BofA ML 3-Mo T-Bill)0.16%0.76%0.78%