Weekly Market Update, December 5, 2022

Posted on December 5, 2022 by Neal Gallagher

Presented by Mark Gallagher

General Market News

Federal Reserve (Fed) Chair Jerome Powell gave a speech last Wednesday in which he stated, “Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt. Thus, it makes sense to moderate the pace of our rate increases.” While much of his speech explained that restrictive policy may be required for some time in order to get inflation down—specifically noting high wage growth—the market latched on to his moderation comments. Yields fell across the U.S. Treasury curve as a result, with the 2-year, 5-year, 10-year, and 30-year dropping 15 basis points (bps) (to 4.31 percent), 12 bps (to 3.74 percent), 18 bps (to 3.52 percent), and 10 bps (to 3.63 percent), respectively. Expectations for the terminal rate still hovered near 5 percent by the Fed’s March meeting, but with a slower pace of rate hikes, there is still plenty of data that could change between now and then.

Equities markets continued to move higher as they also latched on to Powell’s comments for a slower pace of rate hikes. The S&P rose above its 200-day moving average for the first time since April while the DJIA exited bear market territory. This led to strength for some rate-sensitive growth names, including gains of more than 12.2 percent by Netflix and more than 10.8 percent by Meta. Friday’s strong jobs report did complicate the picture, with wage growth coming in much higher than expected and reversing some gains from Powell’s comments as inflation concerns creeped back in. The top-performing sectors were communication services, consumer discretionary, and health care. Under-performing sectors included energy, financials, and utilities.

Tuesday saw the release of the Conference Board Consumer Confidence Index for November, which showed consumer confidence declining slightly less than expected. The second consecutive decline was driven by worsening consumer views on the current situation and souring expectations.

Two reports were released on Thursday. The personal spending and personal income reports for October indicated increases for the third consecutive month, with strong spending growth. The ISM Manufacturing index for November showed slightly higher-than-expected declines, bringing the index to its lowest level since mid-2020.

On Friday, the employment report for November displayed a strong labor with more jobs being added than expected. The unemployment rate remained unchanged, but the labor force participation fell while wages grew more than expected.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	1.19%	–0.18%	–13.28%	–9.62%
Nasdaq Composite	2.12%	–0.04%	–26.15%	–24.85%
DJIA	0.41%	–0.42%	–3.30%	1.51%
MSCI EAFE	1.06%	2.03%	–12.26%	–8.56%
MSCI Emerging Markets	3.51%	0.17%	–18.58%	–18.62%
Russell 2000	1.32%	0.34%	–14.64%	–13.04%

Source: Bloomberg, as of December 2, 2022

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	1.34%	–11.44%	–11.62%
U.S. Treasury	1.20%	–10.95%	–11.41%
U.S. Mortgages	1.36%	–10.21%	–10.15%
Municipal Bond	0.49%	–8.34%	–8.22%

Source: Bloomberg, as of December 2, 2022

What to Look Forward To

This week’s data will show some insights into business confidence and inflation with reports from the service sector and producer prices. We’ll also get a look at the consumer, with the University of Michigan consumer sentiment index due to come out on Friday.

Data reports will begin on Monday with the ISM Services index for November. Service sector confidence is expected to fall for the third consecutive month, which would be a sign that businesses continue to face headwinds.

The week will end with two more reports on Friday. The Producer Price Index for November is expected to show moderating producer inflation, a welcome sign for those hoping for the pace of Fed rate hikes to slow. The University of Michigan consumer sentiment index for December (preliminary) is expected to increase modestly after falling in November. This can be an important measure for determining whether consumers continue to spend in the face of higher prices and concerns over a recession.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com

Authored by the Investment Research team at Commonwealth Financial Network.

Weekly Market Update, November 28, 2022

Posted on November 29, 2022 by Neal Gallagher

Presented by Mark Gallagher

General Market News

After the Federal Reserve (Fed)’s fourth consecutive rate increase of 75 basis points (bps), the recently released minutes from the early-November meeting indicate that most Federal Open Market Committee (FOMC) members could support dropping to a smaller rate hike when they reconvene in December. “A substantial majority of participants judged that a slowing in the pace of increase would soon be appropriate,” the minutes read. This comes as inflation remains at a stubbornly high level but is showing signs of potential moderation moving forward. While the pace of ongoing rate hikes is certainly an important piece of the puzzle, market participants are also looking for more clues as to what a likely terminal value may be at the end of the cycle. Currently, expectations are hovering around a terminal rate of about 5 percent, but there is plenty more data to be released before that end point comes more clearly into focus. The U.S. Treasury curve was slightly down last week. The 2-year, 5-year, 10-year, and 30-year lost 2 bps (to 4.5 percent), 3 bps (to 3.92 percent), 4 bps (to 3.73 percent), and 12 bps (to 3.76 percent), respectively. Last week’s data was lighter than usual due to the holiday, but the release of durable goods orders and the November FOMC minutes helped provide insight into economic conditions and policy. Equities moved higher as earnings and Fed speak about potentially slower rate increases moving forward helped lift markets. Dell (DELL), HP (HPQ), Analog Devices (ADI), and Deere & Company (DE) all posted modest earnings. While the semiconductor space will take any positive news it can get due to recent headwinds, HP announced it will lay off 6,000 employees through the end of 2025 amid cost cuts. The potential for slower rate increases, however, did not immediately lift growth stocks. The top-performing sectors last week were utilities, materials, financials, and consumer staples. Sectors that underperformed included energy, technology, and consumer discretionary. Wednesday saw the preliminary release of durable goods orders for October. Both headline and core durable goods orders came in above expectations during the month, which was a good sign for business spending. Wednesday also saw the release of FOMC meeting minutes for November. The minutes from the most recent Fed meeting showed that central bankers are carefully monitoring the path of inflation as they consider slowing the pace of rate hikes at future meetings.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	1.56%	4.15%	–14.29%	–10.96%
Nasdaq Composite	0.73%	2.29%	–27.70%	–26.95%
DJIA	1.80%	5.16%	–3.70%	0.46%
MSCI EAFE	2.15%	12.34%	–13.69%	–10.60%
MSCI Emerging Markets	–0.09%	11.12%	–21.57%	–20.79%
Russell 2000	1.07%	1.34%	–15.74%	–15.64%

Source: Bloomberg, as of November 25, 2022

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	3.48%	–12.78%	–12.84%
U.S. Treasury	2.36%	–12.28%	–12.54%
U.S. Mortgages	4.01%	–11.48%	–11.46%
Municipal Bond	4.06%	–9.32%	–9.02%

Source: Morningstar Direct, as of November 25, 2022

What to Look Forward To

This week’s data will provide a number of insights about consumers, including the November Conference Board’s Consumer Confidence survey and employment report as well as the October income and spending reports.

The week will kick off Tuesday with the Conference Board Consumer Confidence Survey for November. Consumer confidence is set to decline modestly in November, echoing a similar decline in the University of Michigan consumer sentiment survey during the month.

Thursday will see the release of both personal income and spending reports for October and the ISM Manufacturing index for November. Both personal income and personal spending are expected to show continued growth in October. Manufacturing confidence is expected to fall into contractionary territory, highlighting the headwinds that the industry is facing.

Finally, Friday will see the release of the employment report for November. Economists expect to see that 200,000 jobs were added during the month, which would be a step down from the 261,000 that were added in October but still strong on a historical basis.

Weekly Market Update, November 21, 2022

Posted on November 21, 2022 by Neal Gallagher

Presented by Mark Gallagher

General Market News

Despite seeing some recent data that potentially points to a slowing pace of inflation, there is still tightening to be done. Core Consumer Price Index (CPI) data for October increased 0.3 percent month-over-month, but Federal Reserve (Fed) officials have indicated that this better-than-expected result should not be seen as a sign that the inflation fight is over. St. Louis Fed President James Bullard noted, “Thus far, the change in monetary policy stance appears to have had only limited effects on observed inflation . . .” He went on to say, “To attain a sufficiently restrictive level, the policy rate will need to be increased further.” The U.S. Treasury curve twisted slightly last week. The 2-year and 5-year gained 17 basis points (bps) (to 4.5 percent) and 4 bps (to 3.98 percent), respectively. The 10-year and 30-year fell 2 bps (to 3.79 percent) and 13 bps (to 3.89 percent), respectively.

Equity market performance was mixed last week as we saw varied commentary from Federal Open Market Committee (FOMC) members. FOMC Vice Chair Lael Brainard echoed the sentiment of James Bullard in that the Fed was potentially looking at slowing the pace of future rate hikes. The Fed’s continued hiking cycle saw inflationary plays such as consumer discretionary, energy, REITs, and materials sell off. The Nasdaq Composite also underperformed its Dow Jones and S&P 500 counterparts as growth stocks continued their underperformance in the face of higher costs of capital going forward. International markets fared a bit better with the MSCI Emerging Market Index up 79 bps as China has showed signs of easing some Covid-19 policies despite rising infection rates. Consumer staples, health care, and utilities outperformed, led by earnings from Walmart (WMT) as the store benefits from its food/staples business.

Last week’s data was focused on retail sales and the housing market, starting with the release of October retail sales data on Wednesday. Both headline and core retail sales growth came in above expectations, signaling continued resilience for the American consumer.

The week wrapped with the release of existing home sales for October. Existing home sales fell less than expected. This does mark 10 consecutive months with declining home sales, however, as rising prices and mortgage rates continue to cool the housing sector.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	–0.61%	2.56%	–15.60%	–14.24%
Nasdaq Composite	–1.51%	1.55%	–28.23%	–30.03%
DJIA	0.11%	3.29%	–5.41%	–3.25%
MSCI EAFE	0.26%	9.97%	–15.51%	–15.74%
MSCI Emerging Markets	0.79%	11.23%	–21.50%	–23.59%
Russell 2000	–1.70%	0.27%	–16.63%	–19.98%

Source: Bloomberg, as of November 18, 2022

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	2.40%	–13.69%	–13.64%
U.S. Treasury	1.48%	–13.03%	–12.93%
U.S. Mortgages	2.95%	–12.38%	–12.42%
Municipal Bond	3.66%	–9.67%	–9.31%

Source: Morningstar Direct, as of November 18, 2022

What to Look Forward To

This week’s data will be light as a result of the Thanksgiving holiday.

Wednesday will see the release of durable goods orders and the FOMC meeting minutes from November. Business spending is set to increase for the third consecutive month in October. Economists and investors will look to the minutes for any hints on the future path of monetary policy.

Weekly Market Update, November 14, 2022

Posted on November 14, 2022 by Neal Gallagher

Presented by Mark Gallagher

General Market News

The Consumer Price Index (CPI) surprised markets last week with headline—which rose 0.4 percent month-over-month against an expected 0.6 percent gain—and core—which rose 0.3 percent month-over-month (excluding food and energy) against an expected 0.5 percent gain—numbers. These results were driven by a decline in prices for used vehicles, commodities, and medical care. The bond market rallied heavily on the news. The 2-year, 5-year, 10-year, and 30-year fell 24 basis points (bps) (to 4.42 percent), 33 bps (to 4 percent), 29 bps (to 3.87 percent), and 19 bps (to 4.06 percent), respectively.

Equity markets also rallied on the lower-than-expected inflation data as Thursday saw the S&P 500 and Nasdaq Composite Index up more than 5 and 7 percent, respectively. The top-performing sectors were those that have been hit hardest by the higher rates and cost of capital, including technology, communication services, and materials. The high growth and yet-to-be-profitable names rebounded sharply in this two-day rally as the potential for a lower cost of capital in theory increased company values via a lower discount rate. That said, not all of the inflation report was positive as both energy and shelter continued their trend higher. The data reflected that not all areas are out of the woods; it may make sense to err on the side of caution before assuming one data point will confirm the trend in the months to follow.

Thursday saw the release of the CPI for October. Consumer prices increased less than expected, due in part to declining prices for consumer goods.

Finally, Friday saw the release of the preliminary University of Michigan consumer sentiment report for November. Consumer sentiment fell more than expected during the month, as consumer views on current economic conditions soured to start November.

Equity Index	Week-to-Date	Month-to-Date	Year-to-Date	12-Month
S&P 500	5.93%	3.19%	–15.08%	–13.40%
Nasdaq Composite	8.11%	3.10%	–27.13%	–28.05%
DJIA	4.22%	3.18%	–5.51%	–4.60%
MSCI EAFE	8.42%	9.69%	–15.73%	–16.61%
MSCI Emerging Markets	5.74%	10.35%	–22.11%	–25.14%
Russell 2000	4.64%	2.00%	–15.19%	–20.90%

Source: Bloomberg, as of November 11, 2022

Fixed Income Index	Month-to-Date	Year-to-Date	12-Month
U.S. Broad Market	1.91%	–14.10%	–13.97%
U.S. Treasury	1.36%	–13.14%	–12.88%
U.S. Mortgages	2.55%	–12.72%	–12.69%
Municipal Bond	1.73%	–11.35%	–11.00%

Source: Morningstar Direct, as of November 11, 2022

What to Look Forward To

This week’s data will focus on the consumer and housing.

Wednesday will see the release of retail sales figures for October. Retail sales are expected to increase 0.9 percent, which would be a sign of continued consumer resilience.

Friday will see the release of preliminary existing home sales data for October. Existing home sales are expected to fall for the ninth consecutive month, driven by rising mortgage rates and slowing demand.